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We all want A players for every role, right? But in today’s competitive market for great talent, the hard question is not whether we want A players but who, specifically, we are willing to go above and beyond to recruit, to pay and to retain. With finite budgets, finite time and finite resources – who’s most valuable? By definition, MVPs are rare and extraordinarily difficult to replace. MVPs are not in specific roles, specific geographies or specific functional areas. They are personas, or types of individuals that contribute 10x their peers to the business – worth every $ spent or extra hour spent recruiting and retaining. These are the true MVPs in a growth-stage business:

Leaders, not Managers: Good managers abound, but great leaders are rare. You know them because they build fiercely loyal and functional organizations – consistent with mission and goals. People move between companies, just to work with them, and stick with them through tough times. They are the ones that come first on your lifeboat test (if i had to order people on a lifeboat, who would i pick first, second, third…). Other people say, “I am here because of Person X.” They reach people deep in their hearts and souls and you need them to do great things.

Closers: It’s not likely that the generators of your business are evenly distributed. Some group of people are disproportionately responsible for your revenue. They do it over and over again. You count on them for the deals that drive big quarters and big years. They chart uncharted territory – close the large deals in your company’s history, or the most volume, or open new markets. Closers are not always sales people (but often are). Sometimes they are the product person who comes in at the end to close the deal, the sales engineer that “really” won the account or the customer success exec that retains and builds on a large account. The lifeblood of growth businesses is revenue growth and they are the lynchpins of that growth.

Deep Thinkers: There are tons of smart people in the world, but very few non-linear, deep thinkers. Deep thinkers simply see the world in a different way. They take a product problem and find a solution that no one else thinks of. They engineer around serious obstacles. You go to them for feedback on a problem – and they have 5 crazy ideas. 80% might be worth ignoring, but the 20% are the difference between mediocrity and greatness. They see around the next corner. They are often a pain in the ass – raising uncomfortable questions. They make you think. Embrace them.

Culture Carriers: I believe culture is super important but it is not the definition of the culture that’s hard, it is the operationalization and scaling that’s hard. And culture carriers are the ones that bleed the Company mission, values, stories and history. They sign up for initiatives beyond their job. They call out, no matter how junior they are, violations of the culture. They find new ways to innovate on that culture. They believe in the tribe and they fight to maintain its authenticity. They are force multipliers for everyone else. And if closers feed the body, culture carriers are its heart. Remember, everyone else joins your company because of what they create.

Execution Machines: Most start-up work is about execution. The ideas and the strategy are hard, but ultimately a small fraction of the work. Execution in a growth stage business is super hard. For BloomReach it means executing across geographies, product lines, segments and verticals. And it’s made harder because everything changes so fast at the growth stage. Thus, success relies on the small group of people who just GSD. Great executors are rare. They get everyone else to buy-in and fall in line. They are great communicators, great organizers and when they take on something – no matter how difficult – it just simply gets done.

I don’t believe in the star culture, I believe everything is about teams. But I do believe there are often a small group of people who keep it all together, allowing businesses to scale beyond early saplings to grow to behemoths. MVPs eat functional and domain expertise for breakfast – because those skills are often abundant and finite in value. They may not be balanced individuals, but they add extraordinary value somewhere. The rarest have more than one “MVP quality.” Sometimes, MVPs can get toxic. In those cases, the team always wins and they need to go. But otherwise, treat them like the MVPs they are.

Advice to CEOs and other leaders: Know your MVPs and build real relationships with them. No matter how big your company gets, how many people work for you, and what the seniority of the individual – if you see a MVP in the wild, recruit them like your Company’s life depends on them. Because it probably does.

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Many of us operate at work like we shop at a grocery store. At a grocery store, we might smell the oranges, check which brand of cereal we want to try and contemplate what is on sale. We’ll walk around, consider the options, and ultimately put the winners into our carts and walk out the door.

We know how to buy.

A lot of how we work comes from the same instinctual behavior. We’re interviewing candidates before we sell them – considering them like the bucket of oranges. We are thinking about which software vendor to work with – a lot like those boxes of cereal. We are evaluating technical options – considering which one is the right balance of return vs. cost. We are qualifying sales opportunities – thinking carefully about – and sometimes over-thinking – the question of which one deserves our time and attention.

Fundamentally, we operate like buyers or consumers first. But here’s the issue if you are an entrepreneur or working at a startup:

No one in the world cares about you. You have no currency. You have no money. You’re lucky to have anyone spend any time on your business when there are so many successful companies to spend time with.

So, reverse how you operate. Sell first, buy later.

The “buy first” mentality comes from a large company orientation. Oracle can be in “buy first” mode since everyone knows them. If you’re at a startup, and you try to “buy first,” you’ll be choosing from poor alternatives.

Let’s talk about specifics. Suppose you’re recruiting, and you prioritize choosing among incoming resumes or interviewing the selection of candidates that are high quality from that group. Fundamentally, you’re choosing from poor candidates. None of the best candidates care enough about your startup to apply. Instead, focus your time on selling to the best people – spend 80% of your time recruiting them to interview and 20% of your time selecting.

Suppose you’re thinking about which of five potential features makes the most sense to build. You can spend a lot of your time evaluating which one is most doable (that’s “buying”) and then push it out to your teams to sell. The alternative would be to spend most of your time “selling” (or validating in product-management-speak) and then only evaluate feasibility on what you know would move the needle.

Suppose you’re meeting a potential vendor – a PR firm, a software provider or a law firm. Our natural tendency would be to start by assessing them. However, the best vendors in the world fundamentally shouldn’t work with you, because you have a high probability of amounting to nothing. Start the opposite way. Seek out the best vendors in the world and sell them on your vision and the future potential of your startup. Then evaluate.

Finally, let’s get to sales. You’d think that the one group of people who would certainly be focused on selling are salespeople. But even in sales, how much time do we spend thinking about compensation plans, territory alignment, qualification, adherence to Salesforce, preparation for those meetings, internal alignment, qualifying deals vs. the pure act of selling – persuading someone to buy something they fundamentally don’t have to? Of course, all of those are important activities but do they matter if we don’t have demand for our products? Shouldn’t we be spending 80% of our time on the latter?

As startup leaders, we are not grocery store customers. We are grocery store clerks at the corner store competing against Wal-Mart, Safeway, Whole Foods and Trader Joe’s. And the landlord is happy to throw us out.

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Silicon Valley is embracing the new reality of constrained VC markets, lower exit multiples for technology businesses, and a much more balanced perspective on risk versus return. As the cost of capital has gone up, both sides of the entrepreneurial ecosystem (investors and founders/CEOs) have taken predictable positions. Investors are a lot more bearish on funding, in large measure because the assumptions that underlie their Internal Rate of Return models are uncertain and they are busy funding portfolio companies. Founders and CEOs are engaged in belt-tightening – as we’ve seen from fellow SaaS companies Optimizely, high-flier Zenefits and a range of others. Internet businesses have arguably fared worse. A lot has been written about the rapidly narrowing mismatch between public and private company valuations.

The point of a business is to make money, and too few Silicon Valley businesses, including us at BloomReach, do. As one CEO told me, effecting a culture change from unprofitable growth to profitable growth is “the hardest thing I’ve ever done.”

At BloomReach, we have set the course to achieve the triple play — the kind of recurring revenue scale that provides an ability to tap public markets, best-in-class growth rates, and profitability. We believe that’s what creates long-term sustainable value. We just raised $56 million in capital, so some might ask – why are you worried about driving to profitability now? Now is exactly when we should be worried about it, so we control our own destiny and don’t have to make tough choices to achieve the triple play. Fortunately, we have the benefit of a natural history of capital efficiency and strong unit economics to help get us there, but I fully expect it to be really hard – maybe the hardest thing I’ve ever done.

Building towards profitable growth requires a metamorphosis in the culture of one’s business in so many ways.

Hiring: We intend to use the favorable hiring environment to hire extraordinary people, but we’re fully committed to raising the bar from an already high standard. The natural instincts of a growth-only business are to hire as fast as possible and against a “headcount plan.” That’s not what gets one to profitable growth. Every hiring manager must ask the question — “Is this incremental hire going to move the needle on growth or profitability? Is it going to meaningfully upgrade my team?”

Shorter-horizons on investment: There are a ton of good investments to be made, and in a non-capital constrained world, the question is — “Is this investment going to get us a return?” In a capital constrained world, the question is — “Is this investment the lowest risk, shortest horizon, highest return choice?” Are your marketing programs the ones that have a history of results? Are your product investments sufficiently oriented to where the revenue is rather than where it might be? What’s the risk of achieving those returns?

Investments in productivity and cost-control: You only get to profitability if you spend less than you make. And focusing only on the top line is like fighting with one hand tied behind your back. The natural ethos of Silicon Valley is to build and sell great products. That’s important in any market environment. But what about productivity tools for your customer success team? Or initiatives that help bring down your Amazon Web Services spend? Do you celebrate those victories with the same passion as a new feature or product?

Leveraging teams in every geography: At BloomReach, we have teams in India, the U.S. and the UK. There is a cost to effectively leveraging teams globally, but doing so can make a huge difference in effectiveness and the cost structure. We built a significant product (BloomReach Commerce Search) in India. Of course, teams will always have good reasons for why proximity to HQ or the market matters. But the reality is, if you don’t leverage geographic diversity – you compound the profitability challenge.

Alignment within your executive team and your overall leadership: You’re not going to get to profitable growth if you’re doing it alone. As we started the journey towards profitable growth, our CFO pulled us all together to map out a range of scenarios (around growth vs. profitability) and we committed together to the mission of profitable growth. An aligned leadership team goes a long way towards good decision-making.

Just say no: At times, the decisions to not spend are really painful — a hire you’d really like to make, a trip you’d like your team to take, an initiative you’d really like to start. You’ve done all the context-setting possible but there will come a point on your journey where you’ll just have to say, “No.” It will be highly unpopular, but it’s necessary.

Answering the question,“Is the company in trouble?”: Not growing headcount super-fast can somehow feel the same as reducing your employee base. The psychology of the change from growth-only to profitable growth, requires over-communication of the message that growing costs at a slower rate than revenue growth is exactly the way for a successful company to win. This is particularly true when certain teams are working on growth-oriented initiatives and others are working on profitability-oriented initiatives (important for each set to stay focused on their objectives).

Over-index compensation and culture initiatives on the great people you have: If you have a dollar to spend, spend it on the key people you have that help make you great, and the environment around them that helps them succeed and thrive. At BloomReach we invest a ton in culture and citizenship. I’d rather hire a little slower and over-index on the proven winners than over-hire but sacrifice culture.

Getting rid of the growth-only mindset or marginal-contribution people: There are some people in your business who are only well suited for a growth-only mindset. You’re not going to change them. It’s time for them to move on. There are others who are OK performers, but not great – move on from them.

Don’t over-correct: In a drive towards profitability – your team can interpret your goals as only about profitability. That’s a mistake. Growth still matters a ton, it’s just got to be accomplished in a smarter manner.

The journey to bring the triple play to BloomReach is going to be a tough road, and it is one that is paved with good, balanced decisions. When the temptation to spend the extra money with an uncertain result comes up, remember that the ultimate choice you have to make is – do you want to subject your company to the whims of fickle financial and venture markets or do you want to control your own destiny? I want us to control our own destiny.

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Let’s start here: I think it’s an abomination that Donald Trump is a legitimate political candidate for president. There is very little that he has said or done that I agree with. But if you step back, you can’t deny that he has exceeded expectations, drawn tremendous passion for his candidacy and been highly effective in countering predictions of self-destruction. So what can we learn from his approach to the Republican nomination?

Be authentic: Perhaps the number 1 reason Trump voters are attracted to him is that he feels unfiltered. No reasonable Republican political adviser would advise him to attack George W. Bush in the state of South Carolina (where Bush is enormously popular) or boast about his billions of dollars. In a political environment with so much spin, people value authenticity. And Donald Trump just comes across as being willing to “tell it like it is”, with no sacred cows that he is not willing to take on. Authenticity may be among the most important aspects of leadership. The team may not always agree with you, but they respect authentic leadership and transparency. At BloomReach, we’ve always believed in truth as a core value; it’s at the core of authenticity.

People love a winner and a battle: We will destroy the other candidates. We are going to win the nomination. We are going to win on trade again. We are going to win with our military. We are going to win against Russia or China. We are going to win against corporate interests. The Trump candidacy is built on winning. And winning works. It works in the market and it works in leadership. It’s important to convey confidence that the team is winning and that victory is inevitable. While I’m sure Trump, like all leaders, has moments of self-doubt, he doesn’t convey them. If the leader doesn’t think they will win, why should anyone else? There are bogeymen everywhere in the Trump candidacy – Fox News, the Pope, his political opponents, Mexicans, Russians, ISIS. Enemies can be tremendously galvanizing. It’s a proven tactic in business – Oracle vs. SAP vs. Salesforce, Google vs. Microsoft vs. Apple, Facebook vs. MySpace. Battles draw attention, focus the mind and force us all to take sides.

There is no such thing as bad PR: Press coverage of the Donald Trump candidacy has been unprecedented. His statements are so bombastic that the press (and his adversaries) have no choice but to report on it and comment on it. What does that do? It brings him free media coverage. It makes him the best interview on television. It also, as they say in politics, sucks all of the oxygen out of the room. We can learn a lot from that approach. In a world with a lot of noise, breaking through is hard and many businesses can benefit from a more aggressive PR strategy simply to draw attention to themselves and away from their adversaries.

Outcomes, not details: Much of what bothers people about Trump’s answers to questions is that he consistently ignores questions of “how?” He sticks to outcomes. We will build a wall on the border and Mexico will pay for it. How will we convince Mexico to pay for it? Not relevant. We will defeat ISIS. How? No answer. We will create the largest number of jobs in the economic history of the country. How? No details. But here’s what we miss: Voters are ultimately electing leaders, not policies. And most teams don’t see more detail as greater leadership. The details are there to provide confidence in a strategy, and ultimately to validate the leader’s plan. But just as so many political leaders are so focused on policy proposals, many business leaders are focused on strategy details. We need to remember that too many prosaic details don’t necessarily inspire confidence in great outcomes.

Believable irrationality can work: One of the underlying assumptions of the Trump candidacy is that he will be a better negotiator than anyone else – with Putin, on trade, with China and with anyone else. Here’s the believable part of that. Negotiating with an irrational leader is pretty hard. How do you negotiate with the leader of North Korea when he may actually use a nuclear weapon? Does anyone doubt that Donald Trump might actually be insane enough to threaten our relationship with Mexico or bomb the Middle East? If he’s willing to say the many irrational things he does, maybe he is actually crazy enough to do those things. And that probably puts him in a good negotiating position. Business leaders can learn from that. There are times where a little bit of irrational intransigence can benefit your company’s negotiating position. Perhaps you’re negotiating a tough contract with an employee or a customer and you’re down to a final negotiating point, even a small one. Try just completely walking away from the deal when your counterparty believes you’re close. Your deal might just improve materially.

There is no doubt that the Trump candidacy has challenged the core values and assumptions of so many of us. I’m embarrassed for our country that he is a legitimate candidate. But even I can learn from an insane man.Image fromDonald Trump by Gage Skidmore licensed under CC by 2.0

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Maybe the most important metric in a SaaS world is “ACV” – annual contract value. It answers a lot of questions: What is the “book of business” in your company – i.e. if we never made another sale, what would the annual revenue of the company be once all currently signed deals are implemented? What is the price point of the product? (The ACV divided by the number of customers)? What are the growth-rate trends the company experiencing (rate of growth of ACV)? What can churn tell you about the company (ACV losses)? But the first two letters in ACV might be the most revealing: “Annual” and “Contract.” Those two letter make a fundamental assumption – that customers are willing to make longer-term commitments to software providers without meaningful proof of value.

That’s where the world has changed. In the 1990s, the leading software providers – Oracle and SAP – sold on-premise software. There was no notion of term for the software – you paid millions of dollars for the software and on an ongoing basis for support. The software provider realized revenue regardless of whether the customer realized any value from it and life went on. Let’s call that the age of “You pay no matter what.”

In the first decade of this millennium, the world moved to SaaS. Let’s use Salesforce as the prototypical example of that software. Salesforce will demo its software for you. It will agree to annual contracts and push you to commit to as many years of contractual obligation as possible. It only will recognize revenue when you start using the software. Enter ACV: the value of the business is a function of how many dollars you have under contract. CRM software along with HR Software (Workday) have made a living replacing on-premise software offered by Oracle and SAP. The entrenched software goliaths recognized this threat, positioned themselves as adaptable and many went on buying sprees to acquire their way to protect market position. They largely relied on the same business model as their predecessors – but they did it by hosting the software in the cloud and charging annually. Software 2.0 was a “Pay as you go, but commit” world.

That brings us to today – a world where the new, leading application companies follow the “Show Me” software business models. Go to the home page of Dropbox or Box, and you’ll prominently see a “Free Trial” offer. Tableau will give you a trial of its business intelligence software and leverage usage to grow their revenue as you exceed the number of free user licenses. Demandware follows the Gross Merchandise Value (GMV) – in effect tying Demandware’s revenue to its customers’ revenue. These business models are a reflection of the reality of customer buying behavior – customers want proof of value and real ROI for software purchases. They don’t just want business cases; they want provable ROI.

When people buy this type of software, they expect it to work, and they expect it to deliver the intended value. Building a company in the “Show Me” age requires both an exceptional product and a highly analytical go-to-market model, with a thoughtful integration between the two. Founders and executives who attempt this challenge are best placed ensuring that their teams reflect both sides of the coin. The “Show Me” age requires entirely different competencies than companies of prior generations, and many executives at startups and large tech organization alike don’t understand which keys and costs are most important to employ, especially at scale. The top examples include:

Achieving a Great Pilot or Proof-of-Concept Program (POC): Great “Show Me” applications should win POCs and Pilots. At BloomReach, we run multiple types of pilots or POCs – those that demonstrate real revenue results and and those that demonstrate user engagement. For the “Show Me” software buyers, a good pilot and POC program should have an extraordinarily high revenue opportunity, accelerate the upfront sales cycle, have clearly defined success criteria, and require the customer to make a commitment of some kind (time or money typically).

An Analytical Account Management Team: If customers are looking for “Show Me” software, that orientation will extend well past the initial sale into the long-term relationship. One of the biggest issues that many tech leaders don’t understand is that your account management team should have individuals with strong analytical skills, often from quantitative consulting backgrounds – supported by a “Data Analyst Team” that can work with customers to quantify ROI. The account management team will often track the customer’s ongoing usage of its software or the other key performance indicators (KPIs) that justify the business case, knowing that a decline may portend customer dissatisfaction. Account management isn’t just about taking people to dinner or mitigating issues; it’s about being a partner that adds business value – creating stronger internal champions – every day.

Customer Satisfaction Metrics for Everything: Many companies measure overall customer satisfaction, but miss out on pieces of the sales and customer engagement process. For example, an oft-ignored part of the customer engagement process is implementation often because it comes after a deal has been signed – but good implementations lead to good customer satisfaction, which is a key ingredient in “Show Me” software.

“Show Me” Products: Many SaaS Companies include dashboards that help a customer understand the value they receive directly in the product itself. I recently downloaded the MyFitnessPal app. In addition to showing your caloric intake and exercise, it’s constantly providing trending information – reinforcing the idea that each additional data point they record for you is essential to your future fitness program.

A “Show Me” Business Model: Everything we know about SaaS metrics is challenged by the “Show Me” paradigm. What is the idea of “contracted” value in Demandware’s GMV model? Should the CAC ratio be calculated pre-POC or post-POC? How do we measure lifetime value in a world where accounts can grow or shrink rapidly based on customer satisfaction? Designing a business model for profitable and rapid customer acquisition, while ensuring the level of revenue predictability that investors desire, requires significant innovation. Forecasting in a world of customer-deal variability can require a different financial competency.

Taking Risk: The competitive and crowded market of disruptive technology in today’s landscape forces software vendors to assume more risk – risk that previously was shared more equally by the buyer. In addition, there’s an ever-growing movement even now within the “Show Me” software age to bring the best data chops to the table first – both people and data sources. Buyers are gravitating toward companies that offer unique data that proves and advances their business case and are willing to share the risk to achieve that business case.

A lot about the “Show Me” software world is very positive because it rewards the nimble start-up over the big, entrenched software company. It creates significant business-model challenges for those larger software companies. In particular, large software companies live in a world of rigid processes with rigid financial models and the rigid requirements of Wall Street. A “Show Me” world totally permits exceptional financial performance, but does not reward rigidity. The “Show Me” world also produces better-quality software – because that’s the only type of software that customers will really buy and stay engaged with, enabling the upstart with the better product to challenge the large software company with a distribution advantage. It also intricately ties the sales process and the customer-success process together – creating a more sustainable basis for customer engagement. It favors a cross-sell, up-sell model of selling – enabling software companies that deliver to grow even faster. Of course, not everything is positive. We can take the “Show Me” orientation to an unnecessarily absurd level – turning down projects that make obvious sense because the supporting data may not be crystal clear (data analysis can be murky). The idea is that some things so obviously provide a benefit that the specific ROI is irrelevant. This may sound counter-intuitive coming from the CEO of a big data company, but when our data obsession makes us miss the forest for the trees, it reminds me of a line from my friend Robert Chatwani (former eBay Marketplaces CMO and current CMO of Teespring). “What’s the ROI of your Mom?”

We think of the CEO as the corporate equivalent of a general – planning out the strategy, deciding which battles to fight, determining what resources to apply in the pursuit of which efforts, leading teams into battle and motivating the organization. The parallel between general and CEO is at best an incomplete one. In a startup, the CEO is as much soldier as general.

Superior execution is too important in a startup for the CEO to be only a leader. In its earliest stages, startups require everyone to contribute 200% and the CEO is no different. Yet as the company grows in people, products, revenues and complexity – there is a tendency to assume that the CEO morphs into the order-barking general. Nothing could be further from the truth. Sure, as a company scales, the leadership traits of the CEO become increasingly important, but just as important is the CEO’s ability to step back into the role of individual contributor, and at times, just follow orders. I’ve learned that the assumption of most of the organization will be to always assume that the CEO is acting in a leadership capacity, so communicating that I’m playing one of the other roles proactively becomes extremely critical so that others can step up to the other roles. Here are some scenarios where I think about being an individual contributor even as BloomReach becomes a Company of 250 people:

Selling a big deal: The customer always wants to talk to the CEO and well-placed involvement in driving a big deal could shorten a sales cycle by months or even create a deal where none existed. At the scale we’ve achieved, I’m not likely to be close enough to the details to drive the strategy around closing the deal. I’m more focused on taking orders from the sales rep or the broader account team.

Closing a key employee: The recruiting team has likely laid a lot of the foundation for the discussions and the interview process is probably nearly complete. My job now is to help close the deal. There are certain questions from a candidate (value of the equity, vision of the company) that a CEO is best placed to answer. Being involved in closing a hire can make a big difference.

Tackling a difficult conversation with a customer or an employee: Maybe our system has failed a customer. Maybe we have not delivered on an employee’s expectations. By the time the CEO has been one of these situations,he or she is playing the role of firefighter. In situations of this kind, while I may not have been directly involved in the problem build-up, it becomes my job to calm the situation and identify a fruitful next step (which at times can be to part ways).

Building consensus around a key product decision: In this role, the CEO has become product manager. Often, in the murky world of product strategy, key stakeholders can have different perspectives on direction. Ideally, the product managers and product marketers drive the decision. But sometimes, that just doesn’t happen. It then becomes the CEO’s role to gather the data, drive to a decision and then enroll those stakeholders in the decision.

Being a thought-partner to key executives and leaders: There are plenty of cases where the CEO is advisor, not decision-maker. Maybe a team is thinking about restructuring and considering alternatives. Maybe an investment decision is being made. There are plenty of decisions that shouldn’t be made by the CEO, but the CEO can serve as a counselor – provided he or she is comfortable knowing that the counsel may or may not be taken. The culture of the organization needs to permit dissent – otherwise advice can easily be misinterpreted as orders.

The cases of CEO as soldier are often ones where the leverage gained from being an individual contributor can create outsized outcomes for the company and where the CEO is uniquely placed to deliver those outsized outcomes (i.e. it’s unlikely someone else can be found to play that role as effectively). I’ve tried to be extremely deliberate about when I’m playing the role of leader, when I’m playing the role of advisor, and when I’m playing the role of soldier. It’s important that the soldier role not be the dominant one, otherwise the CEO will crowd out others and ignore critical leadership duties.

Nonetheless, getting back to being a situational soldier can be extremely empowering for leaders as the team grows. While management can be fun, it can also be wearisome and the subset of days when one gets to own a product decision, own a sale or own a hire, can very much feel like a return to one’s roots, in the trenches.

Every time a fellow entrepreneur talks to me about a tough fundraising process, they seem convinced that the problem is potential investors failing to see the business’ potential. Although investors may cite things like market size, technology or stage, the real reason is often that they don’t believe in the entrepreneur and the team. In other words, it’s not them. It’s you. They just can’t tell you that.

So what makes a good entrepreneurial team? There are some traits that are easy to read. What are the backgrounds of the founders? Are they complementary or overlapping? Do they have the DNA to pull off the venture they are attacking? What kind of leadership qualities do they have? Are they trustworthy? Do they exhibit tenacity? All of these are good questions, but I’ve come to the conclusion that the most important attribute of the highest quality entrepreneurial teams is “Thinking while Doing.”

What does that mean?

As we’ve grown BloomReach, I have discovered the challenge that most scaling (and larger) companies face. To align a larger organization requires planning. Planning requires a lot of meetings. A lot of meetings means a ton of (sometimes) unproductive time. And all of that can really slow things down. Don’t get me wrong – I think driving alignment towards objectives is among the most important things a leader can do. But the process of doing so creates a highly linear dynamic:

Create a strategic plan.

Socialize that plan with members of the leadership team.

Solicit bottom-up input from the larger team.

Finalize that plan with the team.

Share it and receive input from your board.

Start planning on execution.

Lay out the execution plan in detail.

Refactor the strategic plan based on execution realities (and argue over priorities).

Communicate the plan broadly including “why” it’s the right plan

Execute with great focus.

Repeat steps 1 through 10. Nothing is wrong with that process — except that in order to meet reality (fast-changing markets, fast-changing execution considerations, team limitations etc. etc.), it’s just too slow.

A great CEO (which I aspire to be but am nowhere near) can execute the above process flawlessly and thoughtfully, driving both a great strategy and great execution. On the other hand, the entrepreneurial mindset means breaking that process as one deems necessary if it leads to better outcomes. It means thinking while doing. Let’s take a set of examples. What if the market is not responding well to an early product? The corporate mindset would wait until the next strategic plan before killing it. The entrepreneurial mindset would change the product strategy on the fly, independent of the “company goals.” What if the headcount plan suggests hiring 10 more people, but circumstances suggest those 10 people would not be particularly productive until a new leader is identified? The corporate approach would cause the company to execute on the plan anyway (until the next budgeting cycle). The entrepreneurial leader would kill that headcount, independent of what the plan says. What if a number of customers were not happy and the company decided that a product re-think was the only way to satisfy them? The entrepreneurial leader would apply a “by any means necessary” approach to retaining those customers while the product was being worked on.

Thinking while doing is really hard. Most organizations are set up for the leadership and the board to do the thinking and the team to do the doing. That is a broken approach in an entrepreneurial company – everyone is accountable for thinking and everyone is accountable for doing. And both need to be done in parallel. Good planning is valuable to get everyone on the same page towards a great set of goals and with a winning strategy based on current information. But the entrepreneurial mindset requires everyone to be totally prepared to throw out the part of the strategy they are executing on in favor of whatever works. Often that can cause short-term alignment issues or even hurt feelings. But as long as the culture of your startup is one that is oriented to outcomes and not process – all is forgiven. Entrepreneurs at all levels know that alignment is key in the long term. They will certainly communicate actively when they are “throwing out the strategy,” but they will likely do it anyway.

Both thinking and doing are equally important. Many teams I meet are super-scrappy and show great traction, but when challenged, they can’t clearly articulate why their approach is the winning one. Equally, many teams have the most thoughtful plans, but little to show for it. The magical startups have both. When investors ask you to present your plan, then follow that up with a series of questions about traction – they are in effect asking you if you can think while doing.

Having a well run strategic-planning-to-execution process, while maintaining an entrepreneurial mindset (which by definition means breaking that process when it’s the right answer) is a brutally difficult judo move. But the best businesses do it. The next time you’re thinking about whether you have the right entrepreneurial environment, ask yourself three basic questions:

Do you have a great plan that everyone buys into?

Do you have world-class execution skills to make that plan a reality?

Do you have a mechanism for everyone in the company to throw out and refactor their part of the plan when they feel it’s the right answer?

When you think about it, it was only natural that the first wave of SaaS and cloud companies went about their businesses in a horizontal way.

After all, they were making a run at disrupting the enterprise tech giants of the 1990s — Cisco, Microsoft, Oracle, SAP. The big legacy companies were all automators for horizontal business processes (think finance or HR) or core infrastructure (routing or databases). With the SaaS-ification of enterprise software, it followed logically that the SaaS and cloud pioneers would also be purely horizontal – simply moving the work from on-premise to hosted multi-tenant (like Workday for HR and financials or Salesforce for CRM).

But a funny thing seems to have happened on the way to building horizontal SaaS companies. As venture capitalist Marc Andreessen has pointed out, cloud software didn’t just decide to eat on-premise software, it decided to “eat the world.” And it turns out that the business world has many more “vertical” problems than “horizontal” problems.

Let’s define what we mean by vertical SaaS. Vertical SaaS refers to building a software platform, often enhanced by vertical data, to dramatically transform an industry or collection of industries. Guidewire (valued at $3 billion) transforms the insurance industry. Veeva (valued at $3.5 billion) transforms the pharmaceutical industry. Opower (valued at $500 million) transforms the utility industry. And Palantir ($10 billion +) applies data science and software to transform government. These companies don’t get the buzz of Salesforce, ServiceNow, LinkedIn or NetSuite (or even Slack). But they represent the true cases of “software eating the world.”

Data is the differentiator for many vertical SaaS businesses. Because they don’t need to serve wildly different customers, they can invest in accumulating data that creates a disproportionate competitive advantage (some have taken advantage of this and some haven’t yet). Palantir can build a database of threats. Demandware has the opportunity to build a deep understanding of inventory across its customers. The data assets, when coupled with intelligent software, can do a lot more than automate a business process – they can transform industries.

The vertical SaaS businesses might just be better businesses than the pure horizontal ones. If we look at recent trading metrics, the median public horizontal SaaS company is expected to grow 28% in 2016 and have 2% EBITDA margins in 2015. The median vertical SaaS business is expected to grow 22% in 2016 and have 17% EBITDA margins in 2015. Does it really make sense to trade an 8x difference in profitability for a 27% increase in growth rate?

Of course the root cause for the difference in performance here is the efficiency of sales and marketing. The payback periods on sales and marketing for a horizontal SaaS company are about 28% worse. That makes sense because the incremental sales and marketing cost-to-sell in an industry where “everyone knows each other” is significantly lower than in cases where customers are wildly different from each other.

Which brings us to Uber and a clue as to where SaaS is headed. A lot of what we could see from the vertical SaaS companies is being foreshadowed by next-generation, industry-specific consumer platforms.

In the 1990s, consumer software had a horizontal orientation. There was Microsoft’s desktop software and Adobe’s tools for creative endeavors. The first generation of cloud-based software applications for the consumer (like Google for search or Facebook for social networks) have taken broad consumer use cases and turned them into valuable software companies.

The more recent crop of consumer Internet companies have been fundamentally vertical – they have taken a specific industry and used software + data + integration with the real world to build highly valuable businesses worth tens of billions of dollars. Uber’s core differentiators include its easy-to-use software, its database of consumers and their locations, and its integration with fleets of vehicles in real time. Airbnb applies the same logic to house-sharing. Several others attack healthcare or groceries. Why couldn’t the next (and current wave) of vertical software businesses do the same?

The knock on most vertical software businesses has been total addressable market (TAM). Conventional wisdom suggests that the TAM for a vertically-oriented business must be smaller than that of a horizontal business since you are fundamentally selling to fewer people. But that’s not thinking outside the box. Because vertically-oriented businesses can go deeper into their target vertical than horizontal ones can, they end up not just picking up a lightweight business process and automating it, but rather solving much deeper and more significant problems for their target industries. This enables them to command significantly higher prices (which increases the TAM).

More profoundly, the addressable market for the best vertically-oriented businesses is not just the size of the current software market in that industry, it can be the size of the industry as a whole! Just as Uber’s TAM is not just how much consumers previously spent on taxis, it may be the size of the transportation industry as a whole. And when we look at those numbers, the TAM for vertical software-as-a-service is very, very large. Consider B-to-B businesses that serve industries like food distribution, for instance. Sysco alone does $45 billion in revenue.

Attacking large B-to-B markets with software has the potential to create companies that are larger than Salesforce is today. In fact, the set of public SaaS companies that serve vertical markets have only scratched the surface of the possible. We are not far from a world when technology is not a subset of the economy; it is the economy.

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Nobody makes Hollywood movies about characters that don’t have courage. The warrior who goes to great lengths to put himself or herself on the line for his or her brother-in-arms. The sports star who dared to take the game winning shot. The executive who bet the business on a new direction when the forces at play suggested otherwise. The doctor who is prepared to try an experimental treatment. The investor who bets against market forces and wins. These are the stories of legend and heroism. The trouble is – plenty of sports stars miss the last second shot, execs throw their companies into turbulent times with moon shots that don’t work, investors can get fired for countercyclical decisions and doctors can get sued for excessive risk-taking. How should you think about approaching your own work-life? How should you evaluate the level of “courage” you should have when making a decision that affects your career and your business?

The answer is to have “practical courage.” Practical courage involves making courageous decisions that lead to non-linear outcomes for yourself and your business but in a way that is inherently practical.

You can apply practical courage to a whole range of situations. Making practically courageous choices is really hard. The temptations are on one extreme or the other. You will have a large number of people in your life telling you that the path ahead on the courageous decision is really hard, and that one should take the easier road. You will have others who prey purely on emotion. You will hear people say “greatness comes from taking a big bet blindly, believing in yourself and just doing it.” Neither is practical courage and fighting the two polarizing forces is what practical courage involves. Ask yourself a few questions to help you make a practically courageous choice:

Do you have the unfair advantage of knowledge or facts that others don’t have? Peter Thiel calls it “the secret” in his book Zero to One. When Mark Zuckerberg turned down a $1 billion offer from Yahoo!, he likely did not do it because he simply didn’t want to be acquired. He had knowledge about the potential impact of a social network that Yahoo! (and likely many Facebook stakeholders) just did not have. When Andy Grove bet Intel on the microprocessor business and away from the memory business, he knew that one was a path to commoditization and the other was a path to real growth. They could make the courageous choice because they had information that the market did not.

Can you be practical in the short term but right in the long term? Practically courageous choices often involve short-term – long-term tradeoffs. If you make a big bet on a new, more risky choice that is likely to be right in the long term in a way that can be practically pulled off in the short term you have found the zone of practical courage. The lean startup methodology that Eric Ries has talked about is inherently about practical courage. It involves rapid innovation in a clear direction, but it limits investment until early market feedback is positive. Promoting someone with high potential can be courageous. Promoting someone with high potential, but with a backup plan in case they fail is practically courageous.

Have you considered the true downside case? I thought a lot about downside when I decided to be an entrepreneur. It can be a tough decision to leave a good job and great career prospect, until you consider the downside case. I started to think of my education and my previous work experience as an “insurance policy.” I had the good fortune of enough qualifications to get a job anytime, so what’s the real downside case of taking a bit of risk?

Being practical is a path to incremental improvements over the status quo. Being courageous without practicality is like betting at the Casino. But practical courage can give you a truly unfair advantage on a path to tremendous success. Developing an intuition for practical courage is not a science. It is an art, and one that the best leaders have learned. It involves collecting a lot of data and genuinely paying attention to it. But it ultimately also involves having the inner strength to take a set of data points that are inherently grey and having the courage to trust your gut.

I know your first question. Do entrepreneurs take vacations? Absolutely. I just got a chance to spend four days in a beautiful Hawaiian beach town and it made me reflect on the evolution of my vacations as a founder/ceo. The vacation-eschewing, Jolt-cola-drinking, 24-hour-hacking founder culture is primarily the stuff of urban legend. Entrepreneurs are like everyone else. They burn out. And without vacations, they burn out faster. Any entrepreneur that believes in never taking vacations is either lying or the leader of a company that simply won’t be around very long. Vacations are as important to the success of an entrepreneurial venture as work ethic. In fact, if you can’t check out, you can’t be productive when you’re checked in – and that ultimately impacts your start-up’s success massively. You certainly can’t connect with family the way you need to – and that impacts your start-up’s success massively too.

But taking a vacation as a founder is REALLY difficult. You have an emotional connection to the company you started and can’t imagine it surviving even a day without you there. If you’re like me, you’re typically a workaholic – and get a rush out of working a little harder. And you live in an ultra-connected world, which means vacationing isn’t as simple as going someplace else.

I took my first vacation as a founder at least about a year and half after we started BloomReach. We were really small then (fewer than 6 people) and the idea of one of us not being around for a week was impossible to imagine. The likely loss in velocity was just too disconcerting to contemplate. Things got interesting when I took my first vacation. I ended up heading to the beach, where I pretty much worked like I was at home. The early-stage start-up vacation is simply an exercise in transplanting and pretend-vacationing. The root problem with my early vacation was that I was too much in the flow of critical path items. Customers needed to be signed. People needed to be recruited. Products needed to be released. I was a bottleneck to progress in all of them. Whenever I opened my inbox, it had more emails to respond to than I had minutes to type.

As we cross the 225-person threshold at BloomReach, my vacations feel pretty different. Sure, in Hawaii there were the one or two phone calls I absolutely had to take and re-orient my day around. There was the occasional mind-wandering from the family back to work. But for the most part, I checked email about twice a day and didn’t do a whole lot beyond that. As I was on the plane ride back home – I opened my email and found that I could get through it pretty quickly. It wasn’t that there weren’t critical items for me to tackle – it’s just that none of them could be tackled via an email task list. I had about 5 big problems to think about – like an under-performing team or the long term strategy for one of our product lines or ways to continue to drive incremental growth. All of them required a lot of thinking, significant in-person communication with key folks, some data gathering and multi-dimensional action. Most were urgent topics, just not ones that could be tackled at a vacation in Hawaii. The vacations changed because the role has changed. We now have a terrific team to tackle the extremely important day-to-day challenges of the Company. But as the team has grown, structural challenges like the topics mentioned above become more thorny and less easy to address. Given the nature of how vacations evolve as one’s role evolves, I think an Entrepreneur should also change the way he or she takes them. In the earlier days – take them a bit more frequently but for short bursts (a long weekend here or there). The days are long so you need to constantly re-charge but you can’t be away very long. As the Company grows, take them less frequently but for longer periods of time (perhaps a week or 10 days). That might enable more of an ability to “disconnect” and greater clarity of thinking to tackle the thorny challenges.

One of my investors, Scott Sandell from NEA, advocated to me that I take a three-week complete check-out vacation every year. I’m not enlightened enough to be there. After four or five days, I’m pretty excited to come back to work. But I do see his point. As you grow in role and responsibility, the quality of your decisions become a lot more important than the quantity of actions you take. And that quality requires a clear mind – one that comes from genuine vacations.

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The story of great companies degenerating into good ones is a common one. What happened to Nokia in the cell phone industry or Dell in the computer industry? What happened to Circuit City or AOL? Even closer to home, what about companies that at one time were going to disrupt the world and went from almost great to truly mediocre? Groupon? Zynga? While different aspects of business strategy and execution were certainly at work, the one consistent factor across companies who were “almost great” or “formerly great” is that they develop a culture of loss aversion. In a strange way, the most risk-seeking of individuals, start-up entrepreneurs, can very quickly forget the greatest asset they had in building their companies – a willingness to take irrationals risks, and tolerate losses if they fail. They can quickly become loss averse and set their companies on a path to mediocrity.

Where does loss aversion come from? The author Daniel Kahneman in his book “Thinking, Fast and Slow” writes at length about loss aversion. One of his key observations is that human beings behave in irrationally risk seeking or risk averse manners (versus the probability-weighted expected value). If presented with the choice of winning a $1,000 with a 10% probability or making $120, many would be risk seeking and go for the $1,000 choice (though the expected value is lower). With losses, the opposite is true. If there is even a small chance they may lose what they have earned, people will go to great lengths to protect against the loss. They will buy insurance for exorbitant amounts. Companies will make bad long-term choices in favor of shorter term ones to protect against missing their quarterly earnings and taking a loss on the value of their stock. They will be loss averse.

The interesting thing is that many of the best companies start by being risk-seeking. They dream of amazing things – they take risks on markets, people and products. They take risks that most existing companies would not deem feasible and when those risks pay off, they pay off in significant gains. And yet, as those companies become more successful they become fundamentally risk averse. That risk or loss aversion manifests in so many ways: they under-invest in new products; they are unwilling to hire people with less experience; they spend money on risk-mitigation systems; they build in all kinds of cushions into their forecasts and they take their marketing in a conservative direction. Why do the most risk seeking of individuals, entrepreneurs, become loss averse? For a variety of reasons:

Short-term gain, long-term loss: As companies grow, the consequences of loss aversion are often not felt immediately. They are felt over time as investments become non-productive. But in the short term, it can often feel like the conservative decision is the winner. The experienced hire might not be the right one long term, but often looks better in the short term.

Fear of losing everything: It’s so hard to build a successful startup, that the pain of losing everything is nothing short of emotionally scarring. Aspiring to greatness, seeing that goal come into view and then failing is a devastating fear that pushes many leaders in a more conservative direction.

Baggage of success: Even a reasonable modicum of success comes with baggage. Scaling the product seems to need an unending number of people. Scaling sales and marketing seems to need an unending amount of investment. Scaling the operations can feel like the hard 20% that takes you from 80% “good enough” to 100% “great.”

We try hard at BloomReach to prevent loss aversion from naturally setting in (and don’t always succeed). We allocate a certain percentage of our R&D efforts to more experimental projects. We identify certain roles where we are willing to promote people without the experience for the role. We establish a cultural value in “thinking” – and promote out-of-the-box thinking in a range of areas. We actively have conversations about whether or not we are making the right trade-offs between “innovating” and “scaling.” We discuss failure openly. We try to ensure that the short-term choices we make are leading us to the long-term destination we are trying to reach. It gets harder and harder to make these choices as we grow and scale. And yet it becomes ever more important. Loss aversion seems to compound as one grows. Each individual becomes loss averse. Each team inherits each individual’s loss aversion and layers on a new layer of it. Each function hedges on the other functions, feeling like they cannot take risks without the cooperation of other functions. And then the CEO and founders inherit all of that loss aversion and add a new layer of conservatism for presentation to the Board and shareholders.

Loss-aversion is among the most corrosive behaviors at a startup that is aiming for significant impact and growth. The road to mediocrity is paved with a thousand “rational” decisions. Lets make sure we all make a couple of well-timed irrational ones.

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Three of the core values of BloomReach are “We”, “Own” and “No Drama.” “We” is about being on shared journey – no individual stars at the expense of the team. “Own” is about acting and behaving like an owner of the company. “No Drama” is about being a team of problem solvers – non-political and collaborative. These cultural values are tightly coupled with the core objective of many early-stage start-ups: creating an environment of little to no hierarchy and maximum creativity. Given that titles are typically a source of hierarchy, the question of how to handle the scaling of the organization while minimally introducing titles is the subject of this post.

Stage 1 – the early days

One of the earliest decisions my co-founder and I made was to establish a principle of “no titles” (full disclosure Ashutosh was always CTO and I was always CEO). The idea was born out of a desire to create an environment where those three values could really take root. In a world of large numbers of VPs, directors, senior directors and managers, the incentive system seems out of whack with the priorities of an early stage start-up. We wanted everybody to be part of “We” – not just the leaders of the company. If titles were eliminated as an issue, everyone could feel like an equal part of the journey. Everyone could feel like they were an owner. And if no one could gun for a new title, the drama quotient would be significantly reduced. Everyone in engineering was “member of technical staff.” People could be paid differently and given different levels of responsibilities – but the lack of hierarchical titles would drive a culture of equanimity. We even went so far as to word every offer letter by function rather than title. People were simply “in sales” or “in marketing.” The standard question we would get is, “How do you recruit great people to a no-titles culture?” By sticking to our guns. If we could come out and say “we have no titles at BloomReach” – it’s pretty hard for a candidate to make an argument that they deserve an exception. And those that walked away on that basis, we were happy to lose.

Stage 2 – “Head of”

As time went by, we got into the “head of” stage of the company-title evolution. We hired a “head of sales” and a “head of product”. The “head of” title was meant to signify leadership, not one’s superior position on the organizational chart. A “head of east coast sales” could report to a “head of sales”. By keeping both titles “head of,” we were continuing to send the message that we were still very much a “We” culture. We could recruit leaders if we needed to, and ensure that the efforts those people were leading could be reflected in the way they described themselves externally. The objective of adding a “head of” title was twofold – provide clarity to the external world on the role of our people and provide clarity internally on who owned a given function. We complimented the “head of” with leads. We had tech leads, marketing leads and product/account management leads. Leads were not titles – they were roles. Someone could be a tech lead for project A and a team member for project B. Stage 2 enabled us to grow up a little bit, just really slowly. And it allowed us to preserve a no-hierarchy culture in day-to-day operational life.

Stage 3 – Directors and Principal Engineers

As BloomReach’s engineering team grew we started to need real people-managers outside of the executive team. We also needed individual role models for the rest of the organization. Directors and principal engineers were born. We have always been very conservative about the criteria for these titles. The people who took them on were already clear leaders – managing complex projects and large teams or providing technical leadership across the company. The addition of directors and principal engineers provided aspirational role models, but still preserved the ethos of a “no titles” world. Since less than 5% of the team had these titles and the bar was so impossibly high – the same behavior of the early days was maintained, albeit with individuals now clearly responsible for the success of others.

Stage 4 – Peer-based promotions

Just recently we took our conservative approach to titling to a new level. As a result of clear feedback from our team that they were hungry for more readily accessible career paths, we introduced the “staff engineer” and “manager” titles in engineering. Though they may make us look a lot more traditional, it was our promotion process that preserved the essence of BloomReach values. The recently rolled out promotion process enabled a team of senior engineers and engineering directors to evaluate the contributions, cultural fit and impact of candidates. They reviewed everything – code, projects, leadership and interaction style. They set the criteria for being promoted to “manager” and “staff engineer.” They debated the merits of each individual and ultimately reached consensus. Importantly, neither my co-founder (our CTO) nor our head of development was present in those meetings. It sent a clear signal: promotions at BloomReach would not be achieved by currying favor with leadership. You succeed by earning the respect of your esteemed colleagues.

Why bother with all of this innovation around titles and promotions? If we were going to end up in the same place as many other companies, why not take the shortcut there? Culture is set in the early days and reinforced over time. Setting a no-titles culture created the collaborative nature of the BloomReacher. Even as titling is introduced, the value system has become so ingrained that it cannot be broken. The conservative approach to titles also ensures that we had the minimum amount of hierarchy needed for a given stage.

The spirit of the “no-titles” organization remains intact today and it is at the heart of everything we do that makes BloomReach healthy– debate, contribution, impact and limited politics. People said it would break over time as the company scaled. We are at 210 people and counting — and I’m still waiting.

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The board meeting needs re-imagination. At most companies, board meetings are either a source of angst for entrepreneurs and investors alike or a source of boredom for those who sit through hours of administrative minutiae. They are either too eventful or not eventful enough. Board meetings are an important communication vehicle and an important force in galvanizing the founders and the management team to step back and evaluate the business from the outside-in.

The perfect board meeting is a problem-solving session. It is a place where smart people with the “inside view” (the management & founders) and people with the “outside view” (investors and independent board members) can come together to solve the thorniest problems in a positive manner.

But lets start with the worst kinds of board meetings:

“Peacock” board meetings: The peacock board meetings are spent with each individual around the table showing off. Investors may show-off how much pattern matching capability they have. They may be positioning against each other. Management shows off what an amazing job they’ve done. Neither party has a conversation, and the parties leave keeping a mental score of who won. Peacock board meetings are not only counter-productive, they set up the kind of adversarial relationships that are ultimately destructive.

“Show your work” board meetings: In the “show your work” board meetings, every member of the management team comes through and fires up their powerpoint presentation. By the end of the session, everyone is bored and it feels like Physics 101 in a lecture hall of 500 people. No one gets anything out of the exercise and reading the textbook would have been just fine. In these meetings, everyone leaves with a lot of data, but very few people leave with any wisdom.

“Administrative” board meetings: Many public boards have become largely administrative – focused on stock compensation plans and auditing guidelines. The boards no longer focus on the key strategic issues of the time. Instead they are focused on liability-protection and ensuring that the company doesn’t screw up, not concentrating on what it takes to enable the company to succeed.

“Beat-down” board meetings: In the beat-down board meetings, members spend their time beating on the team. It becomes a venting exercise for the investors and an exercise in spin for the management. Beat-down board meetings destroy trust and ultimately cause decisions to be made for political reasons rather than value-creation reasons.

“Tangent” board meetings: Tangent board meetings involve one or more board members hijacking the agenda to discuss a tangent. Often that tangent involves discussing something largely peripheral to the prospects of the business for really long periods of time. Tangent board meetings cause others in the room to check out and represent a terrible waste of time.

So lets get to the perfect board meeting – a meeting between equals, engaged in helping solve the most important issues of the day. The meeting may start with minutes and resolution approvals, but it moves on quickly from there. Next up is a reminder of what was discussed previously, how that ties into today’s agenda and what key decisions have been made by the company. Remember, board members are busy and on a lot of boards. It’s your job to remind them what was discussed and agreed upon. The key performance indicators and operating highlights are discussed – but not in a lot of detail, because they can be sent out in advance. It is important, however, that you not assume that every board member has read all of your material in advance. They likely haven’t; and a common baseline is needed to have a valuable strategic conversation. If you’re spending more than half your Board Meeting baselining, however, that’s too much.

Board members will typically care a lot about sales metrics, revenues, the executive team and financing. You’ll feel like you’re spending a disproportionate amount of time on those topics versus other things that you may care equally about (like product, engineering, culture or marketing programs). Get used to it. Your board meetings are not intended to be balanced portrayals of your mental space. The core of the board meeting should be centered on key strategic questions that you are struggling with: Which market to go after? When to raise money? What are the critical hires to make? How to deal with a macro threat? These are tough questions to discuss with a team of people who are not thinking about them every day the way you are. You will feel like you’re doing a lot of education. That’s OK. If you tee up the discussion well, you’ll get a forest-from-the-trees perspective from a number of the people in your boardroom. They will ask you questions that make you re-evaluate your priorities and your intuition. The best board members will not tell you what to do. But they will offer strong opinions. It’s your job to consolidate those points of view, arrive at a decision and ultimately communicate it back to them (except for the small number of things that actually require a board vote).

The best board meetings are passionate, respectful and inclusive. They are open to the key leaders in the company. They allow for disagreement without personal attacks. The best board meetings are also stage specific. I remember our first board meeting 6 years ago with Ajay Agarwal from Bain Capital Ventures. It was entirely focused on hiring engineers. We’ve since had board meetings focused on people and culture, or financing strategy or go-to-market productivity metrics or strategic priorities or vertical expansion. The topics have to reflect where you are as a business. The best board meetings are continuations of conversations – ideally, you’re speaking to your board members with enough regularity (typically more in the early life of a company than later) that they are not re-learning the business every time.

The best board meetings are brutally honest about the challenges the company faces – typically surfaced by the founders/management and not the investors. The best board meetings keep to the agenda and avoid the many rat-holes. The best board meetings have some amount of cheerleading built into them. Company-building is a marathon and every good marathoner needs cheering along the race. The cheerleading helps the investors stay positive through difficult times and more importantly, it will help you and your team feel like you are all on a special journey. The best board meetings are forcing functions for internal communication and re-evaluation.The process of identifying important topics and preparing materials should cause you to keep perspective on the company’s priorities in the middle of the inevitable operational fires. And they provide an opportunity to reflect those priorities back to your larger team during all-hands meetings or through other company communication vehicles.

By no means has every board meeting we’ve conducted at BloomReach been perfect. I can remember plenty where we were guilty of the “show your work” Board meetings. But we’ve gotten a lot better.

And it goes without saying that the prerequisite to the perfect board meeting is perfect board members. Pick wisely and the rest is learnable.

As part of my work with Founder Collective and angel investing in general, I often get calls from entrepreneurs asking “who should I take money from.” It’s a fairly innocuous question but one that most entrepreneurs get pretty wrong. The usual criteria for venture-capital-firm selection (and the likely addition of an external board member) goes something like this:

Maximize valuation.

Maximize valuation from as good a brand name firm as possible.

Maximize valuation from as good a brand name firm as possible and make sure that the selected firm/partner adds value to your business.

The problem: those are the wrong priorities. The No. 1 criteria for the selection of your next investor and/or board member should be: can I answer (with 100% confidence) that my new partner will not destroy value in the firm I created. Here’s why the question makes sense:

The success or failure of your entrepreneurial venture pretty much comes down to you and your team. If you succeed, it’s because you and the team nailed it. Maybe the failure was the result of your own screw-ups. Maybe it was driven by macro events. Either way, it comes down to you. On the other hand, investor impact on your venture is highly asymmetric. If you succeed, your investors may have added some value, but its highly unlikely that the value they added was even close to being among the top five contributors to your success. Of course, their capital was helpful and important, but in a world of capital abundance for good companies, it likely wasn’t their capital that made the difference. On the other hand, investors can absolutely screw up your company. They can lose faith in it during bad times and in the tight VC community, that perspective can get picked up by potential future investors – accelerating your demise. Investors can force an exit for reasons that are driven by personal considerations (like wanting to put a “win” on the board), even when that may be at odds with maximizing the longer term potential of your firm. They can create politics and become high maintenance board members – distracting you from core execution. I have seen board members bail on their founders, or recapitalize the company in their favor, or side with one part of the team over the other, or fail to approve routine investments and paralyze execution. The horror stories are many.

And yet there is nothing fundamental you can really do to protect yourself legally. Once your potential investor is a major shareholder, they have the ability to do enormous damage within the confines of even the most iron-clad shareholder agreement. Which brings me to the golden rule of board member selection: validate that you can totally trust your next board member – even in the most difficult of circumstances. First make sure there is no chance they destroy value; then optimize for price, brand and value-creation.

How do you validate that you can trust your next board member if you weren’t college buddies or business colleagues with them? Here are 10 steps to ensure your next Board Member will not destroy value:

1. Don’t run a shotgun investment process. Get to know potential investors before you ask them for money. And just as they will likely disqualify you if they believe you’re not the right leader or team, disqualify them if you feel like you’re not on the same wavelength. Do it pre-fundraising; when you’re not in the heat of the deal.
2. Ask your angel investors who they trust. They’ve likely seen many more deals than you have and they have a vested interest in protecting their investment.
3. Talk to other entrepreneurs who have taken money from your potential investors (ask them for references of companies where things went badly). Entrepreneurs can be pretty candid with other entrepreneurs.
4. If you can, err on the side of investors who have proven themselves. Minimize discussions with associates or principals. Much of the “bad behavior” comes from individuals within the firm that don’t fundamentally have career security or partnership pull.
5. Think about how your potential board member conducts himself or herself during the investment process. Are they overbearing? Are they largely unengaged? Is the due diligence painful or are their questions genuinely good ones? Are they transparent? Do they seem open to your perspective or rigid in applying their pattern-matching experience?
6. Invite them to meet your team and ask your team members what they think – often the team can see the bigger picture because they have not participated in 15 investment pitches.
7. Stick to reputable firms if you can – you always want to take money from people who worry as much about their reputation as you worry about yours.
8. Meet your future board member over dinner or a drink outside the confines of their office or yours. Do you find yourself having to “spin” as you talk to them (bad sign) or can you imagine them being your first call when the going gets tough (good sign)?
9. Don’t get bullied into artificial timelines. No reasonable investor that wants a 10x return walks away from a term sheet because of an artificial deadline. Take your time and do your diligence.
10. Trust your spidey sense. Pay attention to the small things. Are they throwing in last minute diligence items late in the process? Are they introducing you to a new partner after they told you the partnership was on board? Are they displaying data analysis paralysis? Are they failing to deliver on an intro they said they would make?

I have the good fortune of having an amazing group of investors and board members at BloomReach, from Bain Capital Ventures, Lightspeed Venture Partners and NEA. In addition to not being value destroyers, they are tremendous value creators – they’ve helped with recruiting, thinking through strategic forks in the road, customer introductions, challenging our thought process and picking us up when times are tough. I can count on them for crisp advice and yet also count on them to trust us to steer the ship. I wish that kind of partnership on all of you.

I talked about whether network effects were overvalued in my last blog post. I talked a lot about the value of those network effects in increasing switching costs. Yet most of the examples I used were companies like Uber, Facebook and Microsoft. What about enterprise businesses? Many of the best enterprise businesses in the world have extraordinarily high switching costs, even without significant network effects. It goes without saying that any strong business needs to deliver significant value to retain customers, but beyond that, how do you go about building switching costs into your enterprise business? In this post, I will walk through five kinds of switching costs – Level 1 through Level 5.

Let’s start with why switching costs are important. They are about increasing the predictability and lifetime value of your customers. As you increase the switching costs, the lifetime value of your customers increase, and therefore your ability to invest in acquiring those customers at a higher cost increases with them – feeding the virtuous cycle of more customers, more revenue, more growth and more ability to drive growth. High switching costs are often (though not always) accompanied by high customer satisfaction. If your customers stay with you, their happiness will transfer over to help you sign more customers. If they are all switching out – prospects will question the value of your solution.

I believe there are multiple switching-costs levels:

Level 1 (“My lawyers will sue you if you leave me”): Level 1 companies build switching costs contractually – by signing multi-year contracts with onerous termination provisions. Many legacy software businesses and network providers sign multi-year agreements that prohibit them from switching away from the antiquated platform they have. Customers may not like the software – but the switching costs are so high that they stay. Level 1 switching costs don’t last – they just buy time until the contract expires; and they are increasingly hard to achieve in a SaaS world.

Level 2 (“I love you too much to switch.”): Emotional buy-in is definitely a form of switching costs. Not many enterprise products have the kind of emotional tie-in with their users that Consumer businesses like Apple have, but there are some enterprise products that have the “love” factor. Tableau is one such example – the Tableau user base loves the empowering nature of data visualization. Adobe’s creative suite products elicit similar responses. Graphic designers and other creative artists swear by the suite. You know you have a L2 business when your value proposition doesn’t require an analytical frame of mind to justify your product’s purchase. People buy it because they love it.

Level 3 (“My data and/or business logic is in your systems.”): Salesforce has Level 3 switching costs. The functionality of Salesforce CRM might be good, but even if someone else came along with a better product, the data investment that most companies have made to make Salesforce their customer data “system of record” is significant. Amazon Web Services has a similar story — having caused businesses to leverage Amazon as the data store for their applications makes it painful to switch. Replicating and migrating the data is possible, but just not worth it unless the service is really subpar.

Level 4 (“Your business depends on my business.”): Google might be the best example of this. Advertisers don’t have to love Google to stay with Google. For many of them, their business depends on Google. No CMO wants to show up with plummeting revenues because they turned off 20% of their customer acquisition, even if a marketplace (along with decisions Google makes) sets the price of their relationship. Oracle’s database business or SAP’s ERP business are a different form of “dependency.” Many of the world’s largest businesses run their entire operations on Oracle and/or SAP. Sure, they could switch if a better solution comes along, but the business disruption and the personal career risk would be so large that the threshold for switching is extremely high.

Level 5 (“You are my platform.”): The word platform might be the single most misused phrase in technology. There are, however, true platform businesses that enterprises build enormous amounts of business process and application logic on top of. Platforms may add value because of the network of applications that are built on them (that then add value to new applications) or because the key competitive advantages of the enterprise are tied into the platform they are on. Intel is a prominent example of such a platform. When a server manufacturer decides to build on the Intel architecture, you can assume that switching chipsets isn’t happening anytime soon. The distinction between L5 and L4 is subtle. In L4, my business depends on your business. In L5, my business and your business are so intertwined that the two have become indistinguishable.

So how should a startup think about these various kinds of switching costs? First, by caring about them. Too many startups are too focused on customer adoption, and too unfocused on switching costs. That’s just deferred and increased pain. Often the software that’s easiest to adopt, is also easiest to throw out. It might be worth having a product that has a longer sales cycle to materially increase switching costs. Second, the vast majority of startups aspire to get to Level 1-2, and rarely think through a path to achieve L3-5. Often, the longer one waits, the harder it can get to achieve that path. Finally, the key thing to remember about building switching costs is– if it makes sense for a customer to switch, they will switch. Obvious, right? Too many entrepreneurs and executives are too steeped in their own Kool-Aid to put themselves in the customer’s shoes and ask themselves the hard question: Is my product really worth it?

Like this:

“In economics and business, a network effect (also called network externality or demand-side economies of scale) is the effect that one user of a good or service has on the value of that product to other people.”

-Wikipedia

Network effects have always been the utopian goal of any technology business. Unlike the typical case of diminishing economies of scale – where the cost of acquiring the marginal customer increases as you saturate the early majority of your market – network effects create increasing economies of scale. The incremental user will often pay for access to a bigger network –so margins actually can improve as user bases grow. Network effect “lore” has become the dominant paradigm for start-up building in Silicon Valley.

Everyone knows the story of Facebook vs. MySpace. MySpace had a much larger user base but Facebook focused on the “Social Graph” (and a much better product) and ultimately dominated the network. Paypal followed the precedent of Visa and Mastercard and acquired tons of merchants, believing in the network effects of more merchants leading to more users leading to more merchants leading to more revenue. Most recently, Uber has raised $1.4 billion of capital on the belief that it needs to grow its user base, provider base and served cities to have the largest two-sided marketplace around – on the assumption that the network effects this creates will ultimately create world dominance. eBay understood this very well – optimizing for maximizing the number and diversity of listings and buyers and ultimately dominating the auctions market. Microsoft did it by building the Windows platform and acquiring both developers and users on the platform – crushing Apple in the early years.

The recipe seems simple right?

Find a possible two-sided market.

Invest aggressively to create early supply and demand.

Identify what it would take to have hundreds of millions of consumers, suppliers or other value-creators enter the marketplace.

Raise insane amounts of money to be able to acquire those hundreds of millions of market participants.

Let your network effects turn you into the monopoly that you deserve to be.

Interestingly – the desire to create “network effect” oriented businesses has particularly accelerated as the costs of distribution on the Internet have decreased. It now seems possible (particularly given that capital availability has increased) to actually acquire hundreds of millions of market participants in a way that seemed impossible previously.

But what if those network effects are just fundamentally overvalued? What if the same factors that make it possible to build a network effect, also make it possible to break a network effect?

The core assumption underlying network effects is that switching costs for market participants grow as the size of the network increases. It’s hard for a user to switch their windows laptop for a Mac, because all of the applications they love were written for Windows. One can’t get off the iPhone because all of your devices, music and videos were built for it. It’s hard to get off Facebook, because all of your friends are on it. But maybe those switching costs are fundamentally overvalued – and that actually, its just as easy to get large numbers of users to switch to a new service (even for a network-effect driven business) as it was to acquire them.

Ultimately, users had no trouble switching from Windows to Macs – when Macs became clearly better. And while iPhones had the early lead in the smartphone category – Android has 62% market share versus Apple iOS which has 38%. And empirically – if the Facebook network effects were that strong and switching costs were that high – why would Facebook have paid $20 billion for WhatsApp and $1 billion for Instagram? Why did anyone even start using WhatsApp or Instagram, if the network effects were really that strong? Sure, the use cases and core users of those services might have been different from Facebook but they are adjacent enough that plenty of people would have suggested that the network effects of Facebook would carry it into those use cases much more naturally than a new start-up could emerge.

Switching costs (even for well formed networks) are just fundamentally weaker in the Internet age. While networks of developers, users, friends or merchants might provide substantial initial value, they can ultimately be defeated by a much better product. Pre-Internet, it would have been impossible for an amazing new product to get sufficient distribution to defeat a large network-driven competitor. Today, that new product has substantial access to capital and several billion Internet users that it can reach without ever opening a second office.

Lets do a thought experiment on Uber – today’s infallible star. The theory is that Uber has already dominated the transportation industry, building an amazing network of drivers and users so that no one will ever beat them. But don’t bet against innovation. What if I developed the following strategy? I decided to build the world’s best car service for the city of San Francisco? I provided self-driving cars so that I didn’t need to worry about their network of drivers and had a dramatically reduced cost structure. I had amazing service in my cars (super nice food, drinks, seats). I made the GPS actually work to a level of precision that Uber didn’t. I made the app even slicker and created a loyalty program of my own. I raised enough capital so that I had a sufficient number of cars and an even shorter wait time than Uber. I donated some of my Company’s proceeds to San Francisco charities to foster local buy-in. I focused my marketing maniacally on the communities of people who take cars most often– just in San Francisco. Suppose it was just a much better product for the San Francisco market? What would the switching costs be for a user to download Raj’s Car Service app versus Uber? Would that user be unwilling to do so because Uber has hundreds of millions of users or a large base of drivers?

The ultimate kryptonite for a network-based business is having a better product in an adjacent, but bigger market. Lets take eBay and Amazon. In 2001, as the Internet bubble died a temporary death – Amazon was supposed to be dead and eBay was the clear winner. They were the ones with the network effects from auctions (and no inventory costs). Fast forward to 2014, and Amazon is worth twice as much as eBay. Amazon had the kryptonite. They had a better product (more selection, fixed prices, great fulfillment, great customer service), in an adjacent market (e-commerce) that was so much bigger than the auctions market. Kryptonite.

The quest to build competitive advantage, economies of scale and switching costs is a worthy goal for all of us in technology. But beware the next time someone pitches you an idea on “the Uber of pets.” Ask them why they are trying to build that network? And beware of the trap of investing massively in building the two-sided network – only to have it marginalized by someone with a better product.

Shortly after I graduated from college at Princeton I went to interview at Morgan Stanley in New York City. Outside Morgan’s Times Square building, I saw the financial firm’s big neon sign – right next to a giant stock ticker and a few flashy ads for sitcoms. As I walked into the opulent lobby, I found myself getting progressively more uncomfortable. It took me a really long time to get through security and as I went through it – I felt like I was dealing with a bouncer at a nightclub. The elevators on the way up were packed. As I walked into the conference room for my interview I looked around. There were a number of pods with exhausted-looking analysts in cheap suits surrounded by super well-groomed partners working in oak-adorned offices that had soundproof doors – everybody in his or her (rarely) own place. The conference rooms were decorated with huge glass mementos of a financing event or an M&A event. They call the mementos “deal tombstones,” appropriate because no one there cared about the prospects of those companies once the deals were closed. I got the offer, I didn’t want to work there. I reflected on why that was – it was the office space. It wasn’t who I was. Too opulent. Too overstated. Too hierarchical. Too contrived. Too formal.

In a world of increasing virtual communications, ironically, your office space is as important as it ever was. It represents everything about you – your values, your relationships with people, the kind of people you want to recruit and the priorities you have. It merits careful design. We’ve gone through five offices at BloomReach – the first in Palo Alto at the Plug & Play and the next four in downtown Mountain View, culminating with our headquarters at 82 Pioneer Way.

Our office represents who we are – it’s open, reflecting our belief in open communication; its got BloomReach branding in its colors and its lobbies; it has a technology flavor to it with the Web Relevance Engine pictorial on the wall. It has a lot of individualism, reflecting the heterogeneity of the team. Teams and executives are interspersed reflecting the “we” orientation of our culture. We designed it with the values we believe in: We believe that everyone needs to have a stake in the culture and therefore we created teams to decorate all of the conference rooms and their unique creativity is reflected in the spirit of each one.

We have the requisite foosball tables, ping-pong tables, recreation room, the famous BloomReach painting – and we have mementos charting our young history. We have the anniversary wall, recognizing the many people who have grown up at BloomReach. The lunch room is bright and well integrated into the rest of the office – providing a place for people to meet up for casual conversations. The conference rooms are named consistent with our “Get Found” motto. White boards throughout are intended to encourage our “think” value. The global clocks represent the global nature of our business. Basically, the layout, design and decor reflects who we are. I can see each of our cultural values – “truth”, “we”, “think”, “own” and “no drama” reflected in the office someplace – all without explicitly planning to do so.

On a New Year’s Day two years ago, I walked into our office to see that low-height cubes had been put up. The idea was to provide more power outlets and more private workspace. I don’t usually veto things but I exercised my veto on that New Years Day. Productivity matters, but I felt that energy and openness mattered more.

All great companies have iconic office environments. Facebook just feels like a “move fast and break things” place. Morgan Stanley was likely designed with the value system that made it one of the white shoe firms on Wall Street. Victoria Secret has beautiful models on the walls. Urban Outfitters has the cool chic vibe that you’d expect from a company based at the Philadelphia Naval Yard.

Why do office environments matter so much? They are a scalable representation of your values. You can’t speak to every member of the team personally, but the vibe of the office that your team walks into sends a message to everyone. I’ve had candidates appear either super excited or super nervous walking into BloomReach. The office space helps with self-selection of those candidates. It also reflects the tradeoffs you care about. Office spaces are a pretty good indication of whether the Company you’re interviewing with or selling to is a good choice for you. I had one sales leader tell me “we shouldn’t sell to Companies that serve coffee in styrofoam cups – they probably can’t afford our software.” That is a pretty good qualification criteria.

The diversity of office space in Silicon Valley is telling. You have everything from the big campuses at Cisco and Oracle and Google, to the non-descript systems startups with tall cubicles, to the uber-chic urban offices in San Francisco. Walking into those offices – you see the value system of the founders and the leaders. Designing the identity of your office should not require more money – in fact if you’re hiring branding consultants to design it, it is by definition not who you are. There is no wrong answer in designing it – just make it authentic.

The trajectory of most careers starts with problem solving. Good engineers, faced with a well-defined problem, can usually do an effective job thinking through how to best solve the problem. The best engineers find the 10x solution – 10x more scalable, 10x more maintainable in one-tenth the time. Good marketing people, armed with an adequate budget and clear goals, problem-solve around messaging or marketing program choices. Good finance people take the characteristics of the business and think about the best deployment of capital to achieve the desired outcomes. Good salespeople are problem-solving around how to navigate obstacles to persuade decision-makers. We all start our careers honing skills around being effective problem solvers. I spent the early part of my career problem-solving as an engineer, problem solving as a financial analyst and problem solving as an early entrepreneur. And some of the best individual contributors at BloomReach, and at every organization I’ve seen, are incredible problem solvers. The CEO job involves a ton of problem solving. And usually, by the time the problem reaches you, it’s a big hairball. It’s a decision where the path is unclear and where the data is murky (a bet on a new market or new product). It’s a complex, people-oriented problem (a manager or team not performing or two leaders not getting along). Or it is a problem that has inherent short-term vs. long-term trade-offs (losing a customer that might be very valuable vs retaining that customer at the cost of longer-term priorities).

Great problem solvers who continue to advance in their careers, are constantly broadening the scope of the problems they can take on. At any startup, leadership opportunities often outpace the people that the startup has to take on tough, large-scope problems. As I look at the people who have advanced quickly at BloomReach we’ve seen them grow from task-oriented problem solvers to outcome-oriented problem solvers. On the customer-success side, they move from “I can complete the analysis” to “I will own the customer’s success end-to-end.” On our engineering team, they move from “I can build this component” to “I can lead this project.” Being an outcome-oriented problem solver provides enormous benefit to one’s manager. There is nothing an oversubscribed manager appreciates more (or should) than someone on the team who says “I got this.” And has the credibility to have earned that trust.

Being a great outcome-oriented problem solver is a necessary, but not sufficient, condition for true leadership. Leadership means both being a problem solver and a problem creator. The inherent nature of a well-executing team is that they are focused on solving a problem. But what if the problem definition needs changing? What if you have a team chasing a revenue goal when they should be chasing a customer satisfaction goal? What if you are executing really effectively against a narrowing addressable market? What if your organizational alignment inherently is misaligned with the goals of the company? Those are all times to step in and create problems for the teams involved.

Problem creation has been important at BloomReach. At times, we’ve created problems to drive a change of direction – sometimes by hiring a new exec, sometimes by personally selling a customer who might be outside of the qualification criteria, sometimes by reorganizing a team, sometimes by radically changing the product goals and sometimes by materially changing budget allocations. Many of these steps create more problems (at least in the near-term) than they solve. Often, they materially disrupt the execution cadence of the organization. They invite significant dissent among key team members. But they are key to driving a team or an organization to raise the bar, think differently and adapt to a dynamic world. I’ve seen cases of leaders going down the problem creation road too far. They create so many problems that they set their teams up for failure. They are unsympathetic when a team member asks for help. They become unapproachable.

Many of the best leaders are great problem creators, inspiring teams to achieve what they never thought possible and adapt in ways that can appear radical at first, but become second nature over time. And they are also great problem solvers, taking ownership for the toughest problems around and helping teams navigate them. The problem-creation gene is a wholly different gene than the problem-solving gene. Problem solvers want to get through the task list. Problem creators want to create a new one. The best leaders get both genes to co-exist in harmony, artfully drawing on each at just the right time.

Like this:

“Every incremental day that goes past I have this feeling a little bit more. I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now. Unprecedented since ’99. In some ways less silly than ’99 and in other ways more silly than ’99.”

– Bill Gurley to the Wall Street Journal, September 15, 2014

I may be in the minority but I remember 1999. In 1999, I was part of a bubble that made the dot-com bubble look small. Sure, those were the days of Pets.com imploding and Amazon’s stock going from $107 to $7 per share.

But I was a part of the telecom bubble, borne out of excessive spending by telcos on spectrum, fiber optic cable in the ground spanning the world, and a massive data center build out. About $2 trillion was lost in telecom market capitalization by 2001, by both well-established companies (MCI, AT&T) and startups (Exodus, Level3, Global Crossing). It was a period when companies were valued as a “multiple of gross PP&E” – or basically, the more money you spend on assets in the ground – the higher your valuation. At least with eyeballs you are dealing with customer acquisition, with PP&E, you’re talking about outdated optical equipment. During that time, I helped start FirstMark Communications – a startup for which we raised $1 billion, including $600 million from private equity firms (KKR, Goldman, Morgan Stanley and Welsh Carson) and $400 million of debt. The story did not end well.

Which brings me to 2014, and the recent spate of articles cautioning startups that the current tech valuation levels might not last and warning startup founders to be careful about raising hundreds of millions of dollars on companies with extraordinarily high burn rates. That is good advice, but hard to accept for entrepreneurs who have never really operated in the dark days; and much easier said by investors than done by entrepreneurs when every force around them pulls in the opposite direction.

Let’s put aside the question of whether or not there is a tech bubble and ask the question – how should a CEO or founder operate in the midst of one?

Gurley says the answer is being “pragmatically aggressive.” I think the real answer is that there should be very little difference in how you operate your business in a bubble world or a non-bubble world. Sure, the cost of or access to capital might be different in the two scenarios but the truth is that for most software, Internet or other low-capital-asset businesses, the cost of capital is far less correlated to success than the use of that capital. Let’s take two cases: You are operating in “normal times” and you need to spend $100 to acquire a customer, versus you are operating in “bubble times” and it costs $200 to acquire a customer. Given that most business cycles, up or down, last three to five years and the lifetime value of your customers likely does not change in the two cases, you should be willing to spend roughly the same amount in both cases. The fact that you can raise $50 million at a $500 million valuation versus raising $50 million at a $250 million valuation should not impact your fundamental decision-making. If the “normal” case only allows you to raise $25M, then you really have to ask yourself whether the incremental $25 million really changes your calculation. In a world of natural capital abundance for good businesses, I would argue it mostly should not (i.e. if you can only raise half the money today, but if you deploy it to good use, more capital will likely be available downstream for you anyway). There may be a difference in ultimate founder / early investor ownership but not likely in ultimate outcomes.

The playbook for operating in a tech-bubble involves mostly blocking the noise out:

Stop worrying about how high Uber’s valuation is: First of all, their valuation does not impact your valuation. The only thing worse than spending large amounts of money unnecessarily or raising money at outrageous valuations that you don’t deserve is doing so because someone else did. I get the competitive fire that most founders/ceo’s have about being best-in-class but worry about the hand you’re dealt, not the one you wish you’d been dealt.

Play for long term: Remember, you are playing for your product vision and potentially towards an exit that takes several years. Responding to current market forces in ways that diminish the value of the long-term to get a short-term pop almost never works.

Over-communicate to your team: Everyone reads TechCrunch. I had one engineer ask me at what price I would be a “buyer and/or seller” of BloomReach stock. Others will be influenced by the events around them and it is important that you continue to explain to your team the various forces that ultimately impact your value and their equity value.

Resist the temptation to massively over-pay or over-hire: The natural conclusion of any self-respecting entrepreneur in a capital-abundant environment is to raise too much capital and then over-pay or over-hire in a super-competitive job market. Don’t do it. It will create fairness issues with your team downstream; and if you over-hire when the risk profile of your company doesn’t permit it, you will ultimately be faced with painful layoffs. Explaining the cuts to your team will damage morale much more than the gains incurred by over-hiring or over-paying.

Only raise money at a price that you have a line of sight towards being priced at in “normal” markets: Just because investors are prepared to value your company at billions of dollars doesn’t mean you take their money at those prices. At some point those investors will want a return; and just the psychological burden of knowing that you need to actually earn out an unattainable price can destroy a founder or a CEO. If you at some point need to do a down round, the financial and cultural costs are massive. Mitigate that risk.

Burn as much money as you would in “normal” environments: Remember the good days will end and you will ultimately be held accountable for what you did with your capital. Usually, in any high-growth environment, there are only so many things you can execute on in parallel and generate a good return. Stick to those.

I’m not suggesting that you should not be opportunistic in good times. Certainly plan your fund-raise to take advantage of the opportunity, negotiate the best possible deals with investors, consider exiting, and (at the margin), be slightly more aggressive.

But mostly, as you are faced with the innumerable pressures to take advantage of the tech bubble, step back and take a walk around your (overpriced) office space. Then come back to your desk and make the unnatural move:

Like this:

The world’s stereotypical definition of a successful CEO is perhaps half Jack Welsh (polished, organized) and half Richard Branson (brash, outspoken, charismatic). CEOs are supposed to be outdoor cats – comfortable representing their peers in the wild, spending large numbers of hours selling the company and the stock. Essentially, it’s a people job, right? So how do you operate as a CEO if you are an introvert?

I’m squarely an introvert by any definition. But I’m not uncomfortable around people and I work hard to be an effective communicator. Remember, the definition of an introvert is not someone who is shy or nervous around people. It is a person who is energized by being alone and whose energy can be drained by being around others. How can one be a leader of people and be an introvert at the same time?

Here are a few things that I’ve learned along the way that help me:

Work on your public speaking: Fortunately my parents had me do a bunch of debate and extemporaneous speaking contests when I was young. It helps enormously as CEO – to have the confidence to get up in front of a large crowd and discuss any subject without enormous preparation. Like any learned skill, public speaking can be learned with practice and it matters as a CEO. Its worth joining Toastmasters or forcing yourself into uncomfortable public-speaking situations to gain practice.

Surround yourself with enough extroverts at work: The demands on your time to participate in events, speak to people or sell will always outpace the amount of time in a day. And because you often don’t derive energy from those activities – you need people who do. I have the benefit of an executive team with enough extroverts to represent the company effectively. This provides a level of balance to my life that helps enormously.

Reserve enough “think time:” I’ve found, especially for an introvert that derives energy from thinking, that if you overschedule yourself – it not only means that you may not be using your time wisely, but that you are not giving yourself enough time to recharge and gain energy. I’ve tried hard to give myself enough unscheduled time to problem-solve, think, read or write. (My philosophy on time management)

Learn the “cold start:” Among the hardest things for an introvert to tackle is the cold start. It’s actually a lot easier to present in front of a room of 5,000 people than to walk up to 10 people and start shooting the breeze. The cold start (i.e. what do you say first) can be among the most challenging things for an introvert. To try to improve in this area – I pushed myself in 2008 to do some cold-calling on behalf of the Obama presidential campaign. It forced me to get on the phone and start a conversation with someone I did not know in Nevada (and ultimately try to get him or her to stay on the phone with me and vote for Obama). My cold starts (and my selling skills) improved enormously.

Spend a lot of one-to-one time and be approachable: Because you are unlikely to be the person who hangs out a ton with folks after work, it’s important that you reach people in other ways. One-to-one time, with the right set of folks, is a valuable way to do that and far easier for an introvert. Often, I don’t do it in scheduled ways – but will rather have multiple, short, frequent conversations with folks on the team. It keeps me in touch with them and them in touch with me, and it’s super easy as an introvert to pull off. Doing everything possible to approachable matters too – joining social events, sitting in an open floor plan or being responsive to email from anyone anytime.

The good news is, as an introvert you’ll bring a lot of good things to the table as CEO that compensate for the skills you may not have. You’ll often be a pretty good listener. You’ll often be able to use your think time to create impactful results for your company and your team. You’ll reach other introverts more effectively because you’ll understand that not everyone naturally speaks up. You’ll make sure you’re balanced as a CEO, spending an appropriate amount of time as an inside cat to make sure your house is in order before you start prowling outside.

Can you be a successful introverted CEO? Absolutely, just ask Larry Page or Bill Gates, both noted introverts. In fact, four in 10 CEOs are introverts. And that’s not an accident.

Like this:

I had the good fortune of attending a dinner with John Chambers, CEO of Cisco. When he was asked why he takes the time to speak to small groups of startup CEOs and entrepreneurs, he recounted a story of having been mentored by the CEO of Hewlett Packard in his early days in the valley. And when he asked the HP exec how he could repay the favor, the HP CEO simply said that he should take the time to mentor the next generation so that the unique assets of the valley transcend generations. Few entrepreneurs have access to regular mentoring from leaders of multi-billion dollar companies. Fortunately, you do not need that mentoring to start a company. What you do need though, is virtual leadership experience. Virtual leadership experience is what MBA programs aim to leverage. They take individuals through a large number of case studies with the goal of building muscle memory to help those individuals confront future situations. The good news is, you don’t need a MBA program to build entrepreneurial muscle memory either.

Let’s step back. Wanting to start a company and being ready to start a company are two independent things. Of course, there are plenty of stories of successful entrepreneurs without work experience – Bill Gates and Mark Zuckerberg among them. But the overwhelming majority of successful founders have been ready to lead. Indeed, the most important experience you can have prior to starting a company is to work at a start-up. Why is that? Because larger companies don’t expose you to enough situations, frequently enough, that would parallel the type of situations that you would need to confront if you were to start your own company. But just because you have worked at a startup, doesn’t mean you are ready to start a company. Once you’ve checked the box on desire, commitment, passion, risk tolerance, family situation and all of the other “must-haves,” you can now ask yourself the key question – are you ready?

This is where virtual leadership experience comes in. Throughout your time at an early-stage or growth-stage company, you will see a lot of situations that go well beyond your job, regardless of whether you are an engineer, product manager, finance person or salesperson. You will see product decisions being made around you. You will see the way decision-making takes place. You will understand your company’s interview process. You will understand the way leaders communicate in the face of adversity. You will watch politics develop – and see whether it gets squashed or cultivated. You will see competitors emerge, and watch how your company responds. You will see financial pressures, and watch how your company handles it. You will see good quarters – and see whether your company gets ahead of itself. You will see bad quarters – and see whether your company gets down on itself. You will see good hires and bad fires. In a relatively short period of time, you will encounter a richer curriculum than your average MBA program offers. You can choose to ignore the things going on around you or you can treat every single thing going on around you as a course in virtual leadership. Let me be specific: If you want to test whether you are ready for a start-up, put yourself in the shoes of the leaders of your company and every time your company is confronted with a situation, ask yourself – what would I do in this situation if I were leading my company? You are living through a true experiment. When a product decision is being made, seek out the information relevant to the decision and force yourself to make a call on the decision (ideally share that thinking with product leaders). Then watch how that decision plays out and look back on your instincts to figure out whether they were wise or unwise. If a personnel decision is being made, think about how you might handle the situation. Then watch how things play out and grade yourself. Think about how your leaders prioritize and communicate and evaluate how you might have approached those tasks. You can take this approach to almost everything going on around you.

One of the benefits to putting yourself through virtual leadership training is that you will learn a very broad set of things about startup decision-making across a range of functions. That will serve you well downstream when you need to weigh in on decisions you don’t have much experience in. More importantly, it will hone your instincts. The difference between being responsible for some decisions and being responsible (ultimately) for all decisions is a very big one and it is the fundamental difference between working at a startup and leading one. Very often, early on in your mental training session (and if you work for a good company), you will find that your instincts aren’t actually all that good. You’ll find that you may not have come to the same conclusions as your leaders, and that very often your thought process was not sound. You’ll also feel pretty uncomfortable – fundamentally lacking in clarity around what the right answer is. But over time, like any muscle, you’ll hone those instincts. You’ll start to agree with your leaders on some things and differ on others. You’ll develop greater and greater confidence in your decision-making and approach to situations. Once you’ve navigated two years or so of virtual leadership training, and graded yourself an A consistently across a range of multi-functional situations – you’re ready to join the thousands who are feverishly building their own dreams.

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Most early stage startups hire sales people way too early. In fact, in this world of rapid iteration, the impetus to hire your first salesperson fast is even greater. Your product will only achieve product-market fit with customer input. Where do you find customers if you don’t have salespeople? Your first couple of hires might be engineers, but you should probably go hire a salesperson pretty quickly, right?

Wrong.

Actually maybe you need to hire a sales leader or manager, right?

Double Wrong.

In the early days of iteration on product, it absolutely makes sense to get customers involved. Once you have a hypothesis on both the BIG problem you want to solve and the way you want to get started in that market, you need customers both to validate the problem and to iterate with you on the solution. At BloomReach, we launched on our first pilot customer in July 2009 not even three months after we’d established our four person engineering team. Signing up an early customer was an essential way to drive towards execution and away from debate. It clarified priorities in a way that nothing else could have. Over the course of 2009, we signed up five-plus pilots and monetized our first paying customer in November 2009.

Where do you get that initial cohort of customers and who gets them?

Ideally, you (the founders) or your product manager (general business person) get them. No salesperson worth his or her salt is interested in selling your half-baked idea with little to no cash incentive. You use your network. You cold call. You show up in potential customers’ lobbies. You go to industry trade shows and hang out as people exit (to avoid paying exorbitant conference fees). You use your school ties. You do anything and everything to get meetings with the right people. Then, you pitch your product to your prospect in a way that is both transformative and realistic. It sounds something like this:

“I am building a product that will drive $X million in revenue, or $Y million in savings or make your life much better in Z way, I’d love you to try it. If you partner with me on this and we succeed together, we will potentially create an industry-defining transformation in your business. Of course, we will have plenty of bumps in the road because this is an early product, and we’ll work through those together.”

If your pitch is compelling, the early adopters will self-select in. You’ll have an initial set of customers to iterate with – all set-up with the right expectations. You may not be the best salesperson in the world, but you know your vision. You (likely) are one of the few people to believe in your product. And your job is not to sell a static product, it is to be part product manager / part salesperson. The learning around the product’s viability is actually a lot more important than the transactional value of the sale.

Your product needs to get to the point where it is very interesting to 5 out of 10 early prospects in your target segment. That number will drop materially once you scale out sales and ask for real money. You may ultimately hire better salespeople than yourself. However, they are not likely to be able to adjust the proposition on the fly to converge the product with the market and therefore you will miss out on valuable product-shaping opportunities. In BloomReach’s case we hired our first salesperson in July 2010, after we had already won 10 customers (many of them turned out to be outside of our desired target market but they enabled us to find a sweet spot). At that point, we hired our Sales Ninja – Hank Lemieux. As Historian Hanawa Hokinoichi writes of the ninja’s key role:

“They travelled in disguise to judge the situation of the enemy, they would inveigle their way in the midst of the enemy to discover gaps, and enter enemy castles… always in secret.”

This is in contrast to the better known Samurai – many of whom you will need later in your business’ lifecycle as you try to scale. Samurai are all about their strict rules of honor and combat, much more akin to the “scaling-oriented” salespeople you will need later.

I met Hank at a Tapas restaurant in Mountain View, Calif., and knew by the end of lunch that he was the right guy for us. He was charismatic, asked a ton of incisive product-oriented questions. He was not initially focused on the compensation or the position. He was excited about the problem. He was excited about the technology. And he was ready to bet on his own ability to take an immature technology to market. He was a player/coach – happy to coach but unafraid to play.

He didn’t have many questions for me about the sales process (good, because we did not have any) or about average deal size. Fundamentally, he understood that it was his job to create those, not to expect those out of an early stage startup. He was all about creative solutions to problems. He was inherently optimistic. He really focused on the key people involved and was motivated by market creation. At the same time, he was a salesperson, not a product manager. He knew how to qualify, how to probe and how to lead a customer to a logical conclusion that ours was the product to buy. And he was not afraid to talk about money. Hank is in a role today as Head of New Product Sales at BloomReach. He is as effective at bringing our new products to market today as he was then at helping me build out our early sales efforts.

Your Sales Ninja is there to acquire early customers by any means necessary and then to put enormous pressure on your product/engineering team to deliver. The interactions between your product teams and your Ninja should be tension-filled at times. He/she is there to represent what it takes to sell and help you develop a repeatable set of processes that can allow you to scale through Sales Samurais. That does not happen if he/she does not crisply articulate what is/is not working in the market and what it takes to sell. Without that, you are not ready to sell in a repeatable fashion.

The characteristics of your Sales Ninja are vastly different than that of the Samurais you will hire later, or even your eventual sales leader. If you hire your Samurais too early, they will burn out and leave you. And you won’t know if it was bad selling or bad product that doomed you. If your Ninja sets things up properly, you will be ready to take the market by storm.

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Most companies fundamentally pay lip-service to customer-centricity. The economics make it so. If I spend a $1 on sales and marketing, I might get $5 in ongoing revenue pretty quickly. So it always makes sense to spend money on sales and marketing in the short term. If it spend a $1 on product and engineering, I might get $100 back in long-term revenue for my business. The return on $1 dollar spent on “customer-centricity?” Not clear. And therefore most companies shortchange their customer-facing organizations with people who cost less and add less value. I’ve never believed in that.

At BloomReach, we have some of the brightest people in the world solving problems for our customers. They don’t just take people out to lunch or dinner and say, “I’ll get back to you” when they get a hard question. They understand the product. They understand our business. They understand our customers businesses. They are analytical and organized. Some are technical. Some are business people. And we spent the same amount of money in 2013 on making customers successful as on marketing. There is no better marketing investment than a $1 spent on making a customer successful.

But how do you make a customer successful? If you want to be customer-centric, the key is to be one with your customer, at least for a day. I see tons of technology companies who say they have found a deep “customer pain point.” Or they say they have found a solution that will deliver an improved return on some part of their customers activities. But when you break it down, customers don’t have “pain.” They are not walking around looking for “ROI.” Searching for ROI might be part of what they do, but its not who they are. They are real people. We have great customers at BloomReach and they are some of the smartest, highest integrity business people I have ever worked with. One of our customers is spending time trying to drive search traffic to his website. Another one is figuring out how to convince his boss to redirect spending to a new project. Another is trying to replace the technical people who are leaving his IT organization. Another one is transforming the retail industry. Another one is tired of all the politics around her. Technology is supposed to make their lives better, not add irrelevant meetings to already busy calendars. If you want to build a great customer-centric company, don’t just put window-dressing on poor fundamentals. Step back and ask yourself some basic questions:

1. Are you solving a problem that is big enough to matter to your customer? Too many products fail here. They deliver value, but they don’t deliver enough value to really move the needle in their customers’ lives. For example, a lot of products promise “ 20% improvement in revenue,” but in some micro-part of a customer’s business. Is that worth anyone’s time if it only touches 2% of the Customer’s business? You’re not competing with other products. You’re competing for my time. And I only give my time to things that matter. Think of it like a consumer mobile app – is it cool enough for me to replace another app on my home screen?

2. Is the value of your product transparent to all involved? Too many software projects from old-school software vendors have great business cases that never pan out. Or at least, no one knows if they pan out. You cannot fundamentally live the life of your customer if you cannot clearly measure the ways in which you’re improving his or her life. At BloomReach we do a lot to measure value – we run control tests, we do analyses to correlate operational metrics with results and we develop ROI studies. We only build products that we believe we would buy if we were the customer. Measurement can be brutally hard and it does not make sense to count every nickel and dime, but if your organization does not care about value delivered, your organization is setting your customer up for the board meeting where they get called out. Value does not always mean revenue generated. It could mean just making someone’s life easier. It could mean improving the user experience of your customer’s business. There are a lot of qualitative ways of creating value. But the value should be palpable.

3. Are you prepared to have an honest conversation with your customer? You will at some point disappoint a customer. There will be a bug in your software. Your release date will slip. Someone will handle a customer care situation badly. Your customer will ask for something totally unreasonable. What are you going to do about it? Are you going to stand up and have the tough conversation where you tell your customer you think they are wrong? Or tell them you have totally screwed something up? If you’re not, you can never be one with your customer. Because you would never misguide yourself (at least knowingly).

I told myself before I started BloomReach that I was only going to start a business-to-business focused company if I could assure myself that the CEO of my customer’s company would care about my product. The world is too noisy for technology that doesn’t matter. I think that’s the starting point for being one with your customer. From there, every aspect of your organization should ask the question, “What would I do if I were the customer?” If I’m selling, is it easy to buy from me? If I’m marketing, do the messages pierce through the noise bombarding my multi-tasking customer? If I’m providing analysis, does my customer care about my analysis? Is it trustworthy? If I’m serving a customer, do my actions get my customer ahead in their organization? If I’m building a product, how hard is it to use the product to fulfill its value proposition? If I’m acting on a support request, how long am I making my customer wait?

The journey to being one with one’s customers is a long one, one that we are very much in the middle of. When you think about customers, remember the famous Jerry Maguire quote from the eponymous movie:

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In this world of go-big or go-home startups, it seems trendy to focus on the product, focus on the user and focus on the long-term platform you are building. All of that is super-important. Interestingly, there is very little conversation on the financial plan. In the old days, the financial plan was the heart of the business plan that you raised capital on. In the days when Silicon Valley actually had a bunch of startups working on “silicon,” costs mattered. It wasn’t as simple as spinning up a couple of Amazon EC2 instances and hiring a few developers to get started. As capital has become more available, startups’ costs have plummeted, and the potential outcomes have become even larger, the question is, “why should any early-stage entrepreneur pay any attention to their financial plan?” If the product works, money is always available. If it doesn’t, you’re dead anyway.

It is true that as part of the seed and Series A pitch, financial plans are probably an after-thought to any savvy entrepreneur or venture investor. You barely have any data with which to project your business, so why should anybody trust any of the numbers you have in a deck? At board meetings in your company’s early days, reviewing progress against the financial plan when product/market fit isn’t really even there feels totally at odds with reality. The role of the financial plan isn’t primarily about fundraising or external reporting. It’s about helping you chart and run your business.

We had a financial plan at BloomReach pretty much at the founding of the business (when the company was just two of us). Here’s an excerpt from our fundraising deck in February 2009:

One and a half years later, we pretty much hit or exceeded all of those milestones and showed up to raise our Series B ahead of our plan. In the fall of 2010, we raised our Series B with a clear 3-year financial plan and materially exceeded those projections by 2012. While good products, good selling, and good execution helped a lot, our financial plan played a key role in helping drive BloomReach to achieve great things. From the day of the company’s founding, it was always something that we measured ourselves by. Goals have a way of turning into reality. Even though we were only two people with pretty much no product and no business model and no customers, simply willing the revenue to occur by putting it down on paper, helped it occur.

Start-up financial plans can play a couple of key roles and really matter:

As the company grows, the plan helps focus the team. Nothing speaks to engineers and other analytical individuals like numbers and having the financial plan really drives consistent goal-setting and priority-setting.

It sets a culture of caring about revenue. Believe it or not, there are many early-stage businesses that don’t obsess about revenue (a small number of them because revenue isn’t what matters most then, but for many just because they are poorly run). Putting the financial plan out there commits you and everyone else at the company to revenue.

Trade-offs become clear. No financial plan in its early days is likely to be valid for very long, but it gives you a map to your destination. If you find a better path, or encounter a new obstacle, it forces you to revisit and edit your map. It drives home the tough trade-offs in dollars and cents.

It sets you up downstream for the all the operational and financial discipline you need to raise money and build a much bigger company: Because you’ve done it from the early days, it does not feel like a new muscle you need to build when the time that you really need a robust financial plan comes.

In most software businesses, there are only two key numbers that matter in your financial plan – revenues and cash. Spending a ton of time thinking about the trade-offs between revenue coming in and cash going out is a worthwhile use of a sleepless night or two. Revenues come naturally to most people in this growth-obsessed environment. But take the cash number seriously. Remember that cash buys freedom to fail one more time and being too aggressive about spending cash just means you’re likely to be at someone else’s mercy before you get enough “at bats.” At every point in BloomReach’s fundraising history we have had about 80% of the cash left from the prior funding round, while seeking the next round – all of which makes fundraising a lot easier. I attribute a lot of that to thoughtful financial planning.

You can take an intense focus on the financial plan too far. Certainly don’t let the plan be the enemy of good decisions. Spend money outside of your budget if it will drive a meaningful return. Choose to miss your plan if you’ll create more long-term value doing so. Hire a lot more, or a lot fewer people if it makes sense to do so. Remember, the financial plan is just your GPS system. Don’t hesitate to take another road if there’s an accident in front of you and you see a shorter path to your destination. Just be sure to adjust the GPS as you go.

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What should you be looking to get out of your career in your 20s? Should you be looking to make a lot of money? Should you be looking to get a brand name on your resume? The most important thing you should be looking to do – is to find your true professional calling. As the famous rags-to-riches entrepreneur Jim Rohn said:

“Time is our most valuable asset, yet we tend to waste it, kill it, and spend it rather than invest it.”

Investing your time in your 20s wisely enables you to spend the rest of your life doing what you love, not searching for what you might love. So the real question you should be asking yourself is: How do I learn the most (about myself and the things I’m interested in), in the shortest time period possible, so I know what I want to be when I grow up?

Lets start with what not to do – go work at a big tech company. Unfortunately, that’s not the easiest choice to make. Google and all the big tech companies recruit on campus. The perks seem attractive (free food and occasional visits by Hillary Clinton or Bono). The brand feels impressive. The pay is good. A lot of your friends likely work there so there is a certain social comfort level. It feels like a stepping-stone to other things. The trouble is that your learning curve is unbelievably slow. If you are an engineer, you likely work on a large project whose contribution is likely irrelevant to the outcome of the business. You’re going to have high variance in the quality of people you work with (because in a company of 50,000 people that is almost certainly going to be true). You’re going to ship production code relatively infrequently. If you are a product manager – you are not facing the most important challenge of a real product manager (building such a product so great that even a lack of distribution capability doesn’t inhibit its success). If you are a salesperson – it’s hard to know if you are being successful because of you or because of the brand you represent. Fundamentally, you’re in the slow-lane as far as learning curves go. The skills you do cultivate, navigating large organizations or dealing with politics, are ones that don’t push you to the intellectual or emotional edge. Ask yourself the question: will the prospects of the big tech company I join change if I join? The answer will be no. And therefore neither your impact nor your learning can be significant. As a result, you might leave a little richer but you really don’t know a whole lot more about yourself and you’re likely much further behind your friends at start-ups or growth companies.

Big service businesses like McKinsey or Goldman Sachs also seem like super interesting opportunities. They pay well. They offer you the opportunity to flit between different projects (Consulting) or different deals (Investment Banking). You get to travel the country or the world and you’re told that you will be interacting with senior executives at clients. Some of that is true. The trouble is, for 90+% of people who work at big services businesses – they are routes to other careers, not careers in and of themselves. That would be fine if the skills you learn there enable to you to learn a lot about yourself. But most of the ex-consultants and ex-bankers I know are about as uncertain about what they want to do in life as they were on the day they joined the big service company. Rather than clarity, the diversity of projects just creates confusion. While there may be some good critical thinking skills that you cultivate – remember that the fundamental job of a Consultant or Banker is to put together PowerPoint presentations and excel spreadsheets that give advice – rarely to implement anything. Your learning will be so concentrated in strategy (5% of life) that you will lose out on learning skills in the more important part (execution).

I spent two years at a big service company in my 20s (Investment Banking @Lazard) and three years of my 20s at a big tech company (Cisco). But I learned 10x more about myself and the path I wanted in life at a start-up named FirstMark Communications where I was a founding member of the team and spent 3+ years at between the ages of 23 and 26. FirstMark was insane – we built a broadband network to provide high-speed Internet access across Europe in the late 1990s. It was a classic telecom bubble story that involved raising $1bn of capital, hiring 600+ people, dealing with government regulators in 10 countries, interacting with Henry Kissinger, building out optical networks and going after a big mission to go wire the planet. There were a ton of things we screwed up at FirstMark and a bunch we got right. But it was a life changing experience for me.

I had accepted admission to business school before I got involved in starting FirstMark and having been both an engineer and an investment banker, I was pretty uncertain about what I wanted to do in life. I would have likely been even more confused after the Business School experience. Instead, I got involved in starting FirstMark and it was the defining experience of my 20s. It told me I wanted to be an entrepreneur and more importantly, it gave me the confidence to do it. I learned more about business and myself in the first month at FirstMark than at 2 years at Lazard or 3 years at Cisco. And while it was intense, stressful, volatile and crazy – I loved it. I had clarity – the rest of my life was going to be about entrepreneurial pursuits. Interestingly, many of my friends and colleagues at FirstMark did not. Some went back to Wall Street. Some went to go work at big technology or telecom businesses. Some went back to school. But they all found themselves and the professional path they wanted in life.

Going to work at a start-up or growth company in your 20s will put you on the fast-lane learning curve. It will be the best investment you can make because you’ll find yourself. The folks who have come into BloomReach in their 20s unclear about their passions, often emerge knowing who they are – becoming business development people or founders or product managers or people managers. They find their calling fast because the pace of the business requires it. You might be concerned about what happens if your start-up fails. Relax. You (probably) don’t have kids at home. You can always move into your friend’s crappy 1 bedroom apartment for a couple of months. And I promise you this – the most employable person in the tech industry is the highly motivated 25 year old (ideally with technical skills). So even if that start-up doesn’t work out, don’t worry – you’ll have plenty of other opportunities and a clear sense of yourself.

It’s really hard to get your start-up off the ground and find initial product-market fit. Very few companies do. An even smaller percentage of entrepreneurs ever come up with Act II. Act I can take many successful tech businesses really far. Google did $15.9bn in revenue, $14.4bn came from advertising, $10.9bn of that came from Adwords. 20 years into its journey and after we have heard of Google getting into video, android, self-driving cars, maps, Google aps, infrastructure to power websites, Enterprise and so many other businesses – nearly 70% of Google’s revenue (and an even higher proportion of its profits) comes from the same business it entered when it was founded. Despite their diversification efforts of launching into new markets, things aren’t much different at at Salesforce (known for CRM, but also with Service Clouds and Marketing Clouds) or at Cisco (known for networking equipment but present in telephony and cable). Microsoft, after its amazing success with Windows, created an Act II in the productivity space – Microsoft Office. Remember, Act II is not a pivot. It’s a second great business.

Why is Act II so hard? When do you need to invest in Act II and how can you give them a better shot at succeeding?

Most businesses never even attempt to build a second meaningful product. For most start-ups, if you achieve meaningful success and market share with a first product line as we have with BloomReach Organic Search all the forces at work will cause you to double down on that business. Customer feature requests will be intended to enhance the existing product. Revenue growth on a larger base will feel like it more easily comes from growth in the existing product. Your distribution model will be much further along for your initial product, so you’ll put more into it. All of this makes sense if you happen upon an initial business whose market size is MASSIVE. The common element of the database market for Oracle, the networking market for Cisco, the CRM market for Salesforce, the Search market for Google or even the Ride-Sharing marketplace for Uber is that they all tackle markets that could be $50bn+ for the initial product they build.

Success in that initial market can take you an awful long way. But here’s the paradox – most successful start-ups don’t start by having their initial product tackle a $100bn market because to do so involves competing with an incumbent that has seemingly unlimited resources on their terms. The graveyard of start-ups that have directly attacked Cisco in networking, Oracle in databases, Google in search and Facebook in Social Networking is extremely large. So what do you do? You fight on the edges.

You attack Google not at Search but by focusing on doing a better job on a highly profitable part of their business (as Amazon is doing in Commerce) or a by riding a different trend (Apple with Siri and other apps steals Search views from Google). Start-ups employ similar strategies. There are a large number of start-ups focusing on the salesperson rather than sales management in an attempt to gradually eat away at Salesforce. There are noSQL alternatives hoping to gradually eat away at Oracle by dominating certain workloads. But here is the challenge. The exact thinking that leads you to pick a market segment that you can genuinely win, causes you to narrow your market size.

Many of the recent public SAAS companies have all but acknowledged that they need an Act II to take their business to the next level. Marketo bought Insightera to expand from Marketing Automation that is B2B centric to Website personalization. Splunk has rapidly expanded its suite of “Solutions” away from just IT operations to a whole range of other domains. All of this is about expansion of the addressable market. It’s about Act II.

At BloomReach we made the decision to expand our platform from a single successful application (BloomReach Organic Search) to a suite of applications to build a full personalized discovery platform. That is our Act II. It is off to a terrific start and I believe will at least quadruple our addressable market. I’ve learned a couple of things along the way:

You can’t rush new products: If you are judging $1 of incremental revenue on your new product at the same value as $1 of incremental revenue of your existing product, you’ve forgotten the trials and tribulations you went through in your first business

If you’re building a new product line, make sure it does not need a new distribution channel: You simply can’t take on building a new product and building new distribution at the same time. If your core business is in Enterprise in the US, make sure your second one is too. (It’s totally fine to expand distribution but do so for the same product, not a new one).

Set up a separate team to tackle the new product: Focus is the key to execution and a separate team (at least in product/engineering) is the only way to drive focus.

Don’t over-resource your new products: Remember most great software products fail because they don’t meet demand. Adding more people to the team doesn’t necessarily fix that problem.

Build an appropriate financial plan: I’ve often gotten this wrong – expecting instantaneous results from a product lifecycle that has to go through its paces. You still need early customers. You still need to prove value. You still need to create customer success. You still need to invest in scalable systems. You can’t skip steps.

Simplify, don’t extend the marketing: The temptation when you are selling two products is to double the size of your slide deck. Take the opposite approach and simplify.

Building and making Act II successful has been as hard as making Act I successful. I have many more resources ($s, customers, distribution, brand and technology). At the same time, I have many more distractions so I can’t take it on myself or with my co-founder. In fact, making Act II successful has involved creating an entrepreneurial team led by our product managers, tech leads and other execs on the management team. Hiring and mentoring entrepreneurs capable of building your Act II and moving obstacles out of their way is a necessary pre-condition for success.

Building a great company is like building cities. You go back and forth between building the infrastructure (highways, internet, waterways etc.) and building the new neighborhoods. Nothing is more exciting than adding another neighborhood, just make sure it’s somewhere people really want to live.

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There are a ton of great days that come along with both founding a business and leading a business. While the lows might be really low, there is no greater professional joy that creating and building something substantial. Here are some of the best days:

• The “Firsts:” The “firsts” are awesome. The day you make your first hire is a day of affirmation. Someone thought your idea was good enough to put their career in your hands. The day you ship your first product, you feel an immense sense of pride for seeing your team deliver on v1.0 of your vision. Your first “user” or “customer” shows you that at least one person believed that you built something of value. The day an investor closes on your first round of external funding validates that people will not only put their career in your hands, but their money, too. Everything about celebrations at a startup seems to be about “firsts.” So much about what we try to do at startups is create the future; and what better way to celebrate the imminent arrival of the future than to celebrate the “firsts” that help get you there.

As you go through your journey, you start to realize that “firsts” are really important but they are a bit like puppy love. They seem like the most important events in your life, and yet – the consequential milestones are the ones that are yet to come.

• The day someone you bet on grows up: So much about innovation is about betting on people. At BloomReach we’ve made plenty of bets. We bet on a whole new blended analytical product and account management role and when the first member of that team became a manager, it was a terrific day. I’ve made bets on key execs, folks who have not had the scale of roles they today have at BloomReach. And the day when they stand up in front of your board and your board member passes you a note saying “you’ve built a great team” is a terrific feeling.

• The day that someone else sells your product: As a founder, you’ve likely moved heaven and earth to help accomplish your first sales. You’ve been half product manager, half salesperson. You do that in the beginning to drive momentum but you have this gnawing fear that no one else will be able to sell your product. And then someone steps up to do it. It makes you feel like a million bucks because it means you can begin the arduous process of thinking about scaling.

• The day you can actually predict your business effectively: Startups are about small numbers for a long time. Small numbers of users or customers or employees or early revenues. Big companies are about sizable revenues and margins and predictability. As you go through your financial planning it can feel pretty ad hoc for a long time. In fact, it can feel like a waste of time because you are nowhere near any kind of scale. And then the day comes where you put together a financial plan to forecast the business over 6 months or a year and actually hit it or exceed it. That’s a terrific day. It means you have real metrics to help you drive your business and that means that you have levers to pull to help you achieve your next milestones.

• The days when you give yourself the guilty pleasure of retrospection: It usually comes on anniversaries (5th anniversary) or material financial events ($1 million per month of revenue). On those occasions it hits you – we started with two people in a small office. We have created a real business here, with really valuable employees, great products, great customers and a great future. The “look at where we came from” days are important. They give you perspective as you confront the many challenges you face.

• The day someone tells you they are building “The [INSERT YOUR COMPANY NAME] of [INSERT INDUSTRY]. That is a pretty crazy day. When I started hearing other entrepreneurs talk about themselves building the “BloomReach of Social Networks,” or the “BloomReach of B2B Marketing” – I knew we had done something pretty special. Of course you have to have good marketing along with a good business to deserve it. There is a certain “I have arrived” feeling about the day you hear that.

You start companies mostly for the good days. The highs are so high that they can keep you going for a long time. They feel like that perfect golf shot – the one that makes you think somewhere deep within, that you might be working with more than a good wind at your back and a little bit of luck.

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People often ask me how things are going at BloomReach. I pretty much give the same stock answer that any halfway decent CEO does – “It’s going great. Awesome. Couldn’t be better.” Of course deep down, there are always the dark days. And in those dark days, it helps to know you’re not alone – that people have been through it before you and that others will go through it after you. I’m talking about successful businesses here, because there are really only two ways to be unsuccessful in a startup: quit or run out of money. Quitting as a founder is like leaving your child to be raised by others. Sometimes there are good reasons to do it, but not very many and you’ll spend most of the rest of your life explaining why you did. Running out of money, after you’ve exhausted all of your options means the inevitable – you’re laying off people, calling it a learning experience and moving on with life. It goes without saying that either of those scenarios are almost always more devastating than any of the below. But there are a lot of bad days in really good companies. Figuring out how to handle them effectively is the key to long-term emotional stability. Here are some of the worst:

Great people leave you: Starting and building a company is an inherently emotional experience. You build your enterprise with a group of brothers and sisters. You aim to have their personal success intertwined with the company’s success. You invest in them and they invest in your shared journey. And then (for all kinds of reasons), they choose to leave. You fight to keep them (as you should) but don’t succeed. You can feel a sense of betrayal or dismay. Let it go. Have confidence that the business you have built will attract other great people. If you’ve done things right, the paradox is that every great person can have an immense impact and yet, the business will thrive even without them. Have them leave on great terms – always as ambassadors of your business.

Macro events start impacting your business: You built a great business and yet forces beyond your control are negatively impacting it. Maybe Apple came out with a competitive product. Maybe Facebook released a feature that kills your distribution channel. Maybe the financial markets are shut down for further investment. It’s rough. There is absolutely nothing you can do. The temptation is to just hope it gets better or you somehow survive the macro tsunami. Unfortunately, delaying just makes things worse. The right answer is to fully absorb the state of the world and ask the question: “If a new CEO walked in today what would he/she do?” Whatever that is, do it.

You lose a big deal or a big customer leaves you: You did everything right. You built and sold a killer product. You engaged the right buyers and delivered a value proposition that was tremendous. You built the right relationships. And then you lose a deal – maybe to a competitor, maybe to a stalled budgeting cycle, maybe for reasons you don’t understand. Once again, you fought hard to keep them but did not succeed. Take a deep breath and analyze the situation. What could you have done better or differently? Sometimes, the genuine answer is “not much.” Make sure there is nothing systemic going on; part on good terms and move on.

There are many more challenges that can be more business-impacting (lack of product/market fit or inability to scale for example). However, you don’t feel quite as powerless in those situations as the ones above- there is always a way forward and you can usually explain the challenges you face. Interestingly, it’s exactly the characteristics of founder/leaders that make the above three situations particularly rough. For founders, everything is personal. The product is personal. The team is personal. Customer wins are personal. That is what can make founder-led businesses special. And it is also what makes the dark days darker. On those dark days, try hard not to respond in the moment with an email or a tirade that you will later regret. Try hard not to take it out on your loved ones. Just for those days, be a professional manager, not a founder.

In this age of the “lean startups,” “agile development” and “minimum viable products,” the temptation for product designers is to get something out quickly and iterate with feedback. So many great applications have been built that way. Early features are intended to grab an audience. The next step is to proceed to incremental development with a goal to deepen user engagement. It’s an attractive theory. What’s the point of inventing the future in a dark room and missing the market? Why not ship quickly and, rather than debate with your co-founders about which features matter, let the market decide. A/B test your way to heaven.

If releasing a “minimum viable product” and then iterating quickly isn’t the key to a successful v1.0, then what is? The key is your “product surface area.” Your product surface area is the broad collection of features that enable your potential user or customer to define you in their mind. For example, by adding a broad set of use cases for publishing and sharing videos, YouTube’s product surface area created a mental space in its users that it was a “video sharing website.” Even though a lot of the early use cases were centered on dating, it did not become a “dating website.” The founders ensured that the product surface area was broad enough to go after the larger opportunity. When you take your first product to market and pitch it to your first 10 prospects – you are holding your product and your business up to a mirror. You are asking the mirror, “How much do you love me; and what would it take for you to love me a little more?” The mirror will give you a totally rational answer. If you are medium build, slightly pudgy, wearing a yellow shirt and your hair is a disheveled, it might come back with, “you look pretty good. Just lose a little weight, throw on a jacket to match the shirt and comb your hair.” But it certainly won’t come back and give you the path to become a fashion model. That’s the nature of your product surface area. Customers do a tremendous job giving you highly valuable incremental feedback but they can’t perceive value propositions that are well outside of the feature set. Therefore they can help make sure your stated value proposition improves but they can’t tell if a whole new bucket of features might be a lot more valuable. Given that you’re about to bet dozens of people, millions of dollars and your reputation on a product direction, the most important thing to get right in your v1.0 is the right depth and breadth of your product surface area. Go too broad and the execution will be terrible. The response you will get back will be a function of poor execution rather than a poor idea. Go too narrow and you run the risk that any feedback you get misses a much larger opportunity.

At BloomReach, we recently released SNAP (Search, Navigate and Personalize). It is a product with meaningful surface area. A “minimum viable product” approach would have suggested we just release a faster, better site-search product and iterate from there. If we did that, we’d get a lot of feedback on how to build better onsite search. Instead we believe that search technology needs to come together with navigation and personalization to deliver a new class of discovery on websites.

Building that combined stack took longer, but it ensured that the surface area was broad enough for us to claim a much larger market and make ongoing feature sequencing trade-offs across the larger surface area and that we received feedback across the full dimensions of the feature set. Picking your product surface area for v1.0 to balance timeline, scope, quality and opportunity is art, not science. While finding your optimal product surface area is important for consumer internet businesses, it’s critical for enterprise businesses. Here’s why:

Feedback Cycles: Consumer products are about driving delight among millions of consumers. Enterprise products are about driving immense value among hundreds (maybe thousands) of companies. The sample size of feedback you get from your early enterprise customers will likely be much slower and much less representative of your broader market than in a consumer business (too few data points). Hoping to iterate on feedback simply takes too long.

Less Tolerance for Experimentation: Enterprises can’t tolerate radical experimentation. They really need something that meets the test of someone working at a company justifying to their boss why they paid money for it. As a result, you don’t get a lot of chances to take half-baked products to them and its important that the initial “surface area” be appropriate so you get the right feedback off of your v1.0, knowing there may not be multiple opportunities.

Reputation Matters More: When a consumer company’s experiment fails, it moves on to the next five experiments. In an enterprise-focused business, when a prospect is the one who tried your failed experiment, the only thing they can tell colleagues is “I tried it and it didn’t work.” Good luck selling to the prospect who received that report.

Consumer hardware devices may actually look a lot more like enterprise businesses in this regard. When Amazon released its phone, it seemed they were asking the Mirror – “if I give you the same full-featured phone as the iPhone with better 3D capabilities and a Prime Subscription thrown in, will you love me?” The Mirror will now speak, and I can assure you that if the phone has missed the mark, lightweight iteration won’t be the answer.

Next time you’re planning v1.0 – remember the Cinderella fairy tale, “Mirror Mirror on the wall, who’s the fairest of them all….”

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The early days of a software start-up are hard. You’ve got product that’s half-baked. Customer pilots that aren’t going well. Hiring engineers is brutal. You’ve got no one to sell your product. You’re running out of money and raising money requires a successful set of customer proof points. You know the playbook that consumer internet companies are following – don’t worry about monetization, just drive user value and grow. The money will come.

I’ve got bad news for you. If you’re in the software-as-a-service (SAAS) business, unless your business model is designed to ensure the money will come, the money won’t be there at the end of your journey.

In fact, few things are as important to the long-term viability of a SAAS business than the congruence of your price points with the market segment you are targeting. Lets do some simple math. Lets say you want to build a $100M recurring revenue SAAS business. There are really only two fundamental ways of doing it:

Tackle the Enterprise: Sell 1000 companies @ least $100,000 per year deals with a market size of at least 5,000 companies

Tackle the Small & Medium Business: Sell 100,000 companies @ least $1,000 per year deals with a market size of at least 500,000 companies

A company like Workday is a best in class example of No. 1, today worth $15 billion. They may have long sales cycles but it results in well over $400,000 per year deals. They went public with 325 customers and had a $135 million previous-year SAAS business. On the plus side: Deals are big; you can pay expensive sales teams their $250,000 on-target earnings; customers are sticky and contracts are typically multi-year so the business is enormously predictable. On the con side: I’m sure the business had greater customer-concentration in its early days than anyone liked; the early bookings must have been pretty lumpy and the sales/IT integration cycles must have been pretty long.

A company like Solarwinds is a terrific example of No. 2, today worth $3 billion. They built the business on small deals, typically less than $6,000 per transaction. Over 50,000 customers used the service at the time of the IPO to generate $62 million in revenue back in 2007. The model promotes that kind of velocity. It is inside-sales driven, with a downloadable version that reduces lead generation costs. Sales cycles are short because reps are often upselling a customer who has already downloaded the product. The market size is large in terms of number of companies, because almost any meaningful business can use the product. The deployment is quick. The pros are that when the flywheel is built, it can be a very cool business. The cons are that building that kind of high-velocity flywheel is super hard and not all market spaces lend themselves to this approach.

The valley of death is often in the middle. It’s the company with the long sales cycle (often because you are selling something that is pretty complicated to enterprises). You still require expensive sales people, have a limited market size and low price points (often $5,000 to $30,000 a year. ) Over time, the model simply doesn’t work. You can’t afford to sell or support large enterprises at these kinds of price points. There simply aren’t enough large enterprises to help you build a large business. Often it takes you a couple of years to discover this. You start off thinking “I will worry about building a great product first and worry about monetizing it later.” Then you convert your first customer into a paying one for $1,000 a month – thinking you can raise prices later once you’ve got customers to serve as references. Sometimes, you might even start with a higher price while targeting the Enterprise but start dropping it rapidly when you face competition, rather than fighting for value. You hire your first set of sales people and they keep closing low-price deals after long sales cycles. You assume that’s because you hired the wrong people or didn’t train the right people well. Your account-management costs are going through the roof and you’re wondering why you’re dealing with a bunch of custom requirements. You’re three years into your venture and you’ve landed in the valley of death. You’ve neither built the high price point, high value enterprise business nor the high velocity mid-market business. You’re simply stuck because neither outcome looks all that achievable.

The valley of death is totally avoidable, but only if you deal with it pretty early in the lifecycle of your start-up. Basically, you’ve got to pick your market segment in tandem with your product. You’re either enterprise, or you are mid-market (at least initially). You can’t be both. If you’ve picked the enterprise direction, somewhere in the first year – validate that someone will pay you at least $100,000 a year or iterate on your product till they do. If you’ve picked the mid-market direction, validate that you can address tens of thousands of companies and do so in a high-velocity manner early in your company’s evolution. If you are in the green zones, you’re set for greater things down the road. If you’re not, iterate till you are because the pain will be a lot worse down the road if you don’t. The great companies like Workday and Solarwinds design their entire business around their market segment – product, marketing, sales costs and competencies, account management and financial metrics.

A corollary strategy that many software entrepreneurs take is the “land and expand.” The idea is to sell a low price point, high-velocity product first – aiming to upsell later into a larger deal. That strategy (taken by companies like Dropbox or Box) can be a good one. But it doesn’t change the basic calculus of your market segment. Land and expand is a marketing/product strategy. If the net result is that you end up with small numbers of low-price-point customers, you’re screwed, whether you’ve landed and expanded or not.

Dealing with price can be particularly tough for product-oriented founders. The temptation is to keep iterating the product and deal with money later. Remember, this is B2B software and not the Consumer Internet space. Aim for the Enteprise or aim for the Small and Medium business, but at all costs, avoid the valley of death.

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“Democracy is the worst form of government. Except for all of those other forms that have been tried from time to time.”

– Winston Churchill

Culture is the center of the start-up. It is the pulse. It is the soul. It is the binding that gets teams through hard times. It is the intoxicant that enables teams to share the highs with each other – making them even higher.

At BloomReach we have our own core values, written in February 2009, before my cofounder Ashu or I had raised any money, figured out our product, determined what market we were going after or hired our first person. That’s how important it was to us.

The most interesting question around culture is not, “What is your culture?” It is, “How do you make your culture real?” Thousands of enterprises have come before your start-up or growing business. Most of them have terrific culture and values documents. But they are not real. They are not authentic to the team or to the business; and they don’t manifest in ways that are practical to the work lives of employees. The pseudo-cultures think that the key to great culture is a lot of parties, free food or cool schwag. It’s not.

The key to making your culture real is to democratize it. The aspirational goal of your culture should be to make it genuinely co-owned by every member of your team. That can be counter-intuitive because so much about companies is top down – the titles, the strategic direction, the planning, the compensation and the decision-making. But culture needs to be built bottom-up. It can’t be the responsibility of the HR team or even the CEO.

It has to be an organism that grows and shrinks with the ebb and flow of your business and the personalities of your team. It has to be truly democratic. So how do you democratize your culture? A democratic culture draws from the pillars of a democratic society. It starts with citizenship.

Here are 10 ways we do it:

The BloomReach Citizenship Document: We maintain a document of dozens of initiatives – broken up between “Fun” and “Company Building” in a Google doc spreadsheet. Each initiative has an owner and a team. Initiatives can be “improve remote office communication,” “organize fitness activities,” “organize peer awards” (more on that later) or “create volunteer events.” No one approves these initiatives. The only ask of a new BloomReacher is that he or she do something that goes beyond their job description to contribute back to the company. Many of their contributions are memorialized in the BloomReach citizenship document. It serves as a repository of our “democratic traditions.”

Hackathons and Business Challenges: We’ve had a tradition at BloomReach of either running hackathons (24-hour efforts to build and ship something cool) or running the BloomReach Challenge (where the entire company is divided into cross-functional teams to dream up business and product ideas). Hackathons and business challenges encourage people who never get to work together and often don’t know each other to get creative and get to know one another. It also reinforces that just as the rewards belong to all of us, the challenges belong to all of us. Eighty out of 170 people participated in our last hackathon and several new product features came out of it, promoting the energy and creativity that are “must-haves” in any start-up.

The Open Floor Plan: Democratizing your culture starts with open communication among teams. Just as in any democracy, there must be freedom of expression. The open floor plan creates energy, expression and sends a clear statement that the environment values everyone equally. Yes, it can lead to some loss of individual productivity, but the cultural gain across the organization outweighs all of that.

One Set of Rules: Are you flying first class and expecting others to travel coach? Is an exec allowed to spend exorbitant amounts of money on a team dinner that a team itself would not be allowed to spend on its own? All of these send clear signals – that the culture does not value the contributions of every member of the team equally.

Peer Awards: Peer awards are fantastic. They reinforce that the highest honor anyone can receive is an unsolicited award from a teammate. For us, peer awards are a big deal. Anyone can give them as a thank you to a colleague, along with a $150 gift certificate. It comes with an Oscar-like thank you speech and creates the essential quality of a democratic culture –the willingness to go to great lengths to help a teammate in need.

Bonuses on Company Performance: A key to democratizing your culture is the idea that “we rise and fall as one company.” And there is no credibility to that claim if the compensation of individuals is meaningfully at odds with how the company performs. Of course, one should find mechanisms to recognize extraordinary performance but a democratic culture means democratic compensation features. Because base compensation and equity are often variant on time of joining and role, a target bonus percent purely based on overall Company performance helps equalize the compensation mix.

Independent Ownership of Decisions: A pillar of the democratic culture is the idea that each individual is an adult, capable of making good decisions as an owner of the business. At BloomReach, we borrow from the Netflix model of limiting “policies” – no vacation policies, no expense policies and no over-legislation of behavior.

Self-Scoring of OKRs (Outcomes and Key Results): Nothing is more typically top-down than individual performance. On the other hand, self-scoring of team OKRs enables teams to (in a non compensation-impacting way) score themselves in public and share those scores openly. It holds each team accountable to each other.

360 Feedback: We try to keep our performance-feedback process simple. However, one of the key changes we’ve made is to incorporate 360 feedback (particularly, feedback from peers). Top down feedback reinforces that the only thing that matters is pleasing your boss. In truth, high-impact initiatives involve teams collaborating with each other fruitfully.

Hanging out together: You can’t force friendships. But you can put people in a position to get to know each other genuinely. We do that with a lot of company-sponsored initiatives like soccer teams, volunteer events and running relays. I’m proud of the number of BloomReachers that hang out with each other. Social relationships build camaraderie. And camaraderie creates loyalties that go beyond loyalty to the company. (Ok, there are some parties involved.)

I believe that a democratic culture solves the single most difficult conundrum of growth: scaling while maintaining extraordinary commitment. We have a long way to go to continue to evolve what being a BloomReacher means. I am sure, however, that the answer to every impending decision lies somewhere in the historical tradition of the only system that has ever really worked: democracy.

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One of a CEO’s hardest and most important jobs is building an executive team. Have a great executive team? You can power through the darkest of hours. Have a dysfunctional, less-than competent or highly unbalanced executive team and you’re in for a world of hurt.

• Don’t Rely on a Retained Search Firm: I’ve never been very successful in hiring execs through retained search firms. (We are 0-3 on searches done through retained search firms at BloomReach). That could be because our standards are insanely high. It could be because we are super-sensitive to “fit” – something that is very hard for a retained search firm to get right. Or it could be because retained search firms focus primarily on people in the market, who may by definition be lower quality candidates. I’m not saying you should not hire an outside firm but it is essential that you use your network to identify the absolute best candidates also– then sell them like hell independent of an outside firm. This will result in a smaller pipeline, but a much higher quality one. Remember, it is your responsibility to find the best candidate. Not the firm’s.

• Know when to bet and when not to: The most common comparison point for CEOs evaluating candidates is between the “experienced hire” and the “up-and-comer.” Some companies believe in one philosophy or the other. I think the answer is situational. We have members of the BloomReach executive team for whom this is very analogous to what they’ve done before. We have members that were total bets that worked out. We have people we have promoted from within. We have people that we have added recently and those that have been with us for 4-plus years. A good rule of thumb for me is, if you believe that the job requirements are highly creative, unique to your business, an area you want to “invent” and spend meaningful founder-time on, then hire the up-and-comer or grow the person internally. They will be more open minded, have less baggage and will be more able to think out of the box. If you believe you have more to learn from the best-in-class companies in your industry for that function, or if you as a CEO/founder want to spend a little less time on that function, hire for experience.

• Hire for Raw Smarts and Intense Motivation: Most start-up journeys involve navigating uncharted waters. I have always made mistakes when I have hired based on resume. Every candidate is only as good as the situation they are placed in. And in most start-ups, that situation relies on versatility, intelligence and sheer (street) smarts. The ivory-tower candidates are better served working in larger corporations or universities than in your chaotic start-ups. Motivation counts as much as intelligence. The ideal candidate is one for whom their success at your company is a defining career moment; where their passion and commitment approximates your own.

• Fit Matters: Most unsuccessful executive team members fail because they don’t share the culture or work collaboratively with others on the team. Ask yourself the following question: Would the new exec team member I’m hiring add to or detract from the harmony of the team. If that answer is not obvious, don’t hire them. Run the interview process through your executive team and take the feedback seriously, don’t pre-judge the outcomes.

• Master of One Function, Jack of All Others: The standard for our executive team is a clear one. Team members must be masters of the function they are leading (engineering, product, sales, marketing etc.). They must be able to get down to the level of an individual contributor on their team (and answer your hard, detailed questions) and rise to scale it at the same time. Without that, they can’t do the job. They must also be able to add meaningful value to every (controversial) conversation around the exec table. That means Administrative/Finance people need to understand the business. Product people need to understand customers. Customer-oriented individuals need to understand technology. And everyone needs to understand the culture and the business drivers.

Perhaps as valuable are the qualities that don’t matter (except as they influence the above): You are not looking for your best friend; you are not looking for the best resumes; you are not looking for the “silver bullet” whose magical arrival fixes the business; you are not looking for the best financial deal on your hire; and you are not looking to have it be primarily the group of people that helped you get off the ground (i.e. your earliest employees) since the needs of the business will certainly evolve.

In the two years since we have assembled our core executive team, I can say clearly that this is the best senior team I have ever worked with. And I sleep a lot better at night knowing that.

13 years ago, when I was in Business School, I had the chance to listen to a talk given by the legendary investor Warren Buffett.

“The secret to a great marriage,” he deadpanned, “is low expectations.”

As it goes in love, so it goes in business. Most will tell you that the key to success in business is about under-promising and over-delivering. At first blush, it makes sense. In a customer situation, exceeding expectations creates greater customer satisfaction. With investors, exceeding “the plan” creates much less painful board meetings. I get it. Everyone is happier when expectations are exceeded. Here’s the problem though:

An overwhelming desire to over-deliver, creates an overwhelming need to underpromise. And the trouble with under-promising is that expectations have a way of becoming reality. It’s the nature of goal setting. I’ve seen it over and over again. In sales forecasts, it seems like whatever the goal, teams have a way of being within range of that goal. Why do so many Silicon Valley start-ups achieve higher valuations than equivalently situated companies in other locations? One reason is because the expectations of everyone in the ecosystem – investors, employees, and founders, are fundamentally higher. I see that in the pricing of software. Why do some SAAS providers charge $500/month, some charge $10,000 a month and some charge $100,000/month. Sure, a lot has to do with the quality of the product and the market they are in. However, a lot simply has to do with setting the right expectations of “value” with the customer.

Bottom line – expectations have a naturally high correlation with reality.

Now lets map that to start-ups. The best start-ups are about creating the .1% case where you defy all odds to create something disruptive, transformative and dramatically more profitable than anything that is rationally imaginable. So what happens if you’re obsessed with “beating the plan?” You tamp down expectations. You eke your way past that plan and you call it a victory. Everyone (employees, founders, board members) is super-happy in the short term. You might even get a raise or get promoted. The trouble is, you have materially diminished the probability of the .1% outcome.

The great thing about aiming for the impossible is that amazing things often result. At BloomReach, we challenged the notion that we could not sell our first 10 enterprise deals without a marketing launch. I don’t know if we got to 10, but we got pretty close. We challenged the notion that you could not price software on a performance basis. We ended up inventing a new business model in the process.

We set a goal to go live with a large deployment in an insanely short period of time and launched an entirely new product line much faster than we would have had we demanded less from ourselves. Sometimes we missed the mark big time. At times our aggressive release schedules have resulted in subpar engineering designs. Sometimes our insane revenue forecasts have resulted in me having to stand up at Board Meetings to report that we missed our numbers. One of the natural consequences of setting insanely high expectations is that the team can feel like they are “always failing.”

At BloomReach we have tried to address the consequences of BIG expectations in a couple of ways. We try to be straightforward with our team that the expectations are super audacious and internally describe our plans as “The hero plan.” We set OKRs at a level where a score of “80%” is an “on target” score. Anything higher suggests the targets were too low. We decouple people’s compensation from these goals. Pulling off this approach requires a set of investors and board members with an exceedingly long-term vision. We must have the confidence that those board members won’t make decisions based on achievement of short-term, easy-to-meet criteria. It also requires a really aggressive executive team and a super-committed employee base. We are fortunate to have all of those.

I can’t imagine a public company trying to sell this approach. But I am advocating it as a way to get there. Life is too short to under promise. I would rather aim for the sun and hit the moon, than aim for liftoff and barely escape the atmosphere.

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I get the call at least once a quarter. A friend, acquaintance or random person reaches out to me and says:

“Raj, I think its time for me to leave Google (insert household name tech company here). I need your advice on starting a company.”

The second version of the phone call is from someone who has left their well-paying job and is concurrently interviewing for new ones while “exploring a start-up” and looking for advice on their start-up.

In the beginning I took these phone calls seriously. I took the caller through the pros and cons of starting a company. I tried my best to paint an accurate picture of the steps along the journey and the accompanying thrills and challenges. Pretty soon I realized that almost none of those people ever left that large tech company. And if they did, they ended up at another one.

Why?

Entrepreneurs don’t interview. They commit. But its not for the reasons typically discussed.

The romantic version of the story involves throwing everything to the wind, being the risk-taking, college-dropping-out, dream-believing cowboy that is the stuff of Silicon Valley legend. The reality is a lot more murky. The reason you need to commit is because there is no other way truly validate a serious start-up opportunity.

Starting a company takes intense focus and uncertain timeframes. Unfortunately, it isn’t like being an investment manager. You don’t get to pick 50 ideas and experiment with a whole bunch of them and let the best one win. It is an inherently linear pursuit. A ton of ideas look really good at 30,000 feet and terrible when you get up close. And the only way to get up close is to dive deeply into your proposition. Unfortunately that takes 100% of your working hours (and many non-working ones). Of course, the idea is the easy part. Having the right team, driving to execution, raising money, validating your proposition, prototyping your product, getting buy-in from your family are important steps. One hundred things have to go right to start your company – and then you’re just at the starting gates.

In my case, I went through this in the two and a half years before starting BloomReach. I left my job at Cisco expecting that it might take six months to start a company. Two and a half years and more than a half-dozen serious start-up explorations later, I started BloomReach. There were plenty of reasons for the long run up. Markets that turned south. Teams that did not gel. Ideas that sucked. Prototypes that I hated. I tried to keep the bar high, believing that if I was going to pour my life into something, it had to work.

During those “two and a half years in the wilderness,” I had a young kid and a super-supportive wife. Not everyone takes two and a half years to get to the starting blocks, but the variance on that time frame is massive.

That brings me back to my friends from tech companies. For highly-qualified individuals, getting an interesting job is A LOT easier than starting a company. So the time frames never line up. A person concurrently looking for a job and starting a company will be faced with an inevitable choice – a highly certain, well-paying, pretty cool job versus a highly uncertain, not well-paying dream that is nowhere near fleshed out. That’s because getting a job is a deterministic endeavor that likely completes in weeks (maybe months). Starting a company has no defined timetable.

The only way to make that choice is to never put yourself in a position to make it. If you truly want to start a company, dedicate yourself to that and only that. Otherwise, kiss your entrepreneurial dreams goodbye.

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If competition matters, you haven’t innovated in your market definition.

The companies I admire most stand in their own image. They can’t easily be defined by any definition of a market that Gartner or Forrester have defined and written reports about. They chart a clear mission or goal – and that goal substantively redefines a market or a product category. Because their world-view is so unique, it ultimately enables them to stand on their own, much less concerned about competitors than about adoption of that world-view. Lets take two success stories in the Big Data / Software world as examples: Splunk and Box. Both are highly successful companies with likely multi-billion-dollar market capitalizations.

Here’s what Splunk’s S-1 said about its competitive environment at the time of its IPO:

“We compete against a variety of large software vendors and smaller specialized companies, open source projects and custom development efforts, which provide solutions in the specific markets we address. Our principal competitors include:

IT departments of potential customers which have undertaken custom software development efforts to analyze and manage their machine data.

Security,systems management and other IT vendors,including BMC Software,CA,HP,IBM,Intel,Microsoft,Quest Software, TIBCO and VMware.

Huh? They compete with everyone from custom software to web analytics to business intelligence to security to systems management vendors?

Here’s what Box’s S-1 said about its competitive environment:

“The market for cloud-based Enterprise Content Collaboration services is fragmented, rapidly evolving and highly competitive, with relatively low barriers to entry for certain applications and services. Many of our competitors and potential competitors are larger and have greater name recognition, much longer operating histories, larger marketing budgets and significantly greater resources than we do. Our competitors include Citrix, Dropbox, EMC, Google, and Microsoft.”

Rough. All they have to do to succeed is win against a rapidly innovating start-up with a disruptive adoption model (Dropbox), and three of the largest software businesses in the world (EMC, Google, Microsoft).

Splunk had raised $40 million by the time of its IPO. Box had raised $400M. Their respective business models had a lot to do with the capital requirements but the primary culprit was the competitive environment for each of the two companies. Box simply needs ungodly amounts of money to achieve dominance in its market versus Splunk’s more modest needs. Why?

Because Box did not innovate in its definition of the market, while Splunk did. Both companies innovated in their early products – they would not have gained meaningful adoption otherwise. But product innovation isn’t nearly enough. It’s market definition innovation that is truly sustainable. In Box’s case – it was clear they were selling a collaboration and file storage service. That market existed long before Box got there and will exist long after. Even SAAS versions of such a service existed. In Splunk’s case no one was very clear what they were – were they a log management company? Were they a search company (a lot of the early innovation was search on log files)? Were they a systems management company (a lot of early use cases were around keeping systems up and running)? By having a murky market definition, Splunk could compete against legacy vendors in all of those categories because no one could neatly put them in a box (no pun intended).

This meant that venture capitalists funded fewer competitors and each of the major players in the space (large security or log management or search or systems management companies) all just walked away. Why? Because none of them thought it was their market to compete in. Of course, as the category evolved, large entrants started to pay attention. However, it’s all too late. It’s not enough for a competitor to compete by simply building a better product, or throwing capital at the problem, or arriving with better distribution. They have to learn completely new businesses. Security companies don’t have systems management DNA. Systems management companies don’t have search DNA. And Search companies don’t get selling into IT. What a terrific competitive moat!

Don’t get me wrong – you can compete with better execution in a highly competitive market. Just prepare to raise several hundred million dollars and be an execution machine. The hardest thing about innovating on market definition is that you don’t get to have a well-defined (and easily communicable) total addressable market, or TAM. Your products and your proposition define your TAM. Your TAM does not define your products.

At BloomReach, we think a lot about market definition. And I love that no one can put us in a box. Are we an SEO company? A big data company? A site search company? A personalization company? An e-commerce enabler? A SAAS company? World-views are powerful things. And there is nothing like standing alone in your world-view and being right.

When it comes to building a team, venture capitalists and experienced leaders spout a classic refrain: “hire slow, fire fast.” The logic makes sense at one level. You only want to hire A players – in skills, cultural fit and motivation. And often within the first 30 days, you find that new hires are exactly who they ultimately will be. Therefore, take your time finding the fit and if you determine that the person is not right – fire them.

But here’s why it often makes sense to hire fast:

The market for great talent is hot… as hot as it has been in the Valley in years. Decisiveness counts for something in identifying the right candidate.

In many cases, more interviews just create confusion. Consensus on a candidate in a candid, aggressive culture almost never happens.

Interviews are fundamentally flawed. The probability of a better hire with more data degrades fast when the macro issue is that interviews yield highly imperfect results.

Firing fast is the more dangerous decision. Firing fast has cultural implications – it creates a lot of turnover, it sets initiatives back, it often creates politics and it creates a murmur of “why did Person X leave” (assuming one does not disclose publicly who leaves voluntarily and who doesn’t)? If the hiring bar is really high (as it is at BloomReach) – firing fast creates a simple message for the team: “You are only as good as what you do in the first 90 days?”

Really?

We’ve had plenty of amazing people who were put in the wrong role, struggled to understand how decisions are made initially or were slower (but ultimately more productive) learners. And culture isn’t something that someone gets overnight. It takes time and osmosis to build relationships. I have found that most hires operating in a high-performance organization go through their own version of the Gartner Hype Cycle. (Lets call it the Star Performer Hype Cycle.) It looks a lot like this:

In the Star Performer Hype Cycle – the trigger is the hire and often in the beginning the star is a breath of fresh air. They bring in new ideas, new contacts and a new personality into the mix. It often feels like they have the silver bullet to all of your problems.

Until they don’t. That’s when the peak of inflated expectations comes crashing down into the trough of disillusionment. That’s when you feel like they don’t sell enough deals or get your technical architecture or even understand the most rudimentary concepts of the business.

For stars, at some point something clicks. They know how to execute in your chaotic environment. They sell one deal and that helps them sell the next. Confidence breeds confidence. And the virtuous cycle grows. Extricating your new star from the trough of disillusionment can sometimes take an intervention from their manager: a refocus on priorities, a clarification of role, a therapist to listen to their struggles. I’ve taken a lot of BloomReachers through this trough and out to the high performance category.

Fire fast and risk falling into the thrall of the “grass is greener syndrome” – betting you can replace him or her with instant greatness. Remember, your star performer may be one quarter away from greatness.

As the leader of a fast growing, chaotic, “everything-is-urgent” growth-stage start-up, time is my most critical asset. Yet it’s remarkable how little thought has been put into the right approach to time management for key leaders. My suggestion: Spend 60% of time scheduled – divided into quarters: 1/4 each devoted to customers, external constituencies, product and people. Spend 40% on unscheduled activities.

Earlier in my career, I tried the extremes. I tried running from one fire to the next, answering 100% of emails and taking every meeting I could. Needless to say, I got a lot done, but I didn’t get the important stuff done. I then tried being super deliberate, not taking serendipitous meetings, leaving plenty of time for thinking and not worrying about responding to emails on a timely basis. That didn’t work either – we were just too small for that.

Early Stage Start-Up Time Management

The early stage forces you to maniacally focus on the next milestone. For instance, you might not have a product if you don’t have a team, so you devote 80% of your time to recruiting. You might not have a team if you don’t have money, so you spend 80% of your time fundraising. You might not get to test product-market fit without shipping a product, so you focus 80% of your time trying to get the product out. You can’t scale without reference customers, so you focus 80% of your time ensuring that you get them. The great thing about early stage time management is focus – and because value is created with clearly defined milestones, time management can follow those milestones and evolve serially to reflect them.

Growth Stage Start-Up Time Management

Growth stage time-management is a whole other beast. The trouble is you are too small to purely focus on the strategic and run the business as a set of KPIs (Key Performance Indicators). You are too big to only be able to execute on one thread; in fact to assure hyper-growth, you have to excel at a collection of things, executing in parallel to achieve the next value threshold. A number of these things are short-term oriented; some are long-term oriented. The trouble is hyper-growth does not come from doing just one thing well (for example, build a great product and you may find the market has changed, or a competitor is racing ahead from a positioning perspective or you don’t have the right people on your sales team). It also does not come from being unfocused – which we all know is the kiss of death.

I have come up with a heuristic to try and manage my scheduled time, which I try to limit to 60 percent (yes days can be long). I divide that time this way:

1/4 on Product and Engineering: In a business like ours, we will not succeed if our product pipeline dries up and we stop being innovative. The trouble with constant innovation as a source of growth is that each initiative is hugely time consuming and therefore requires a lot of “entrepreneurial energy.” I try to ensure that I spend 1/4 of my months on product development – for mature and for new products (to be fair, I have a terrific co-founder who spends a lot more time on this, otherwise this % probably should be higher).

1/4 on customers – new and existing: I learn a lot from being on the road. It motivates me; it challenges me and it puts me on the front lines with our sales and customer success teams. Customers have a way of cutting to the chase – and it helps me prioritize what matters.

1/4 on board, marketing and external: I see a lot of CEOs spend a lot of time at networking events and conferences. I see value in them. Brand matters. Perception matters. Serendipitous meetings can lead to great things. And job #1 for a CEO is to make sure the business never runs out of money. On the other hand, I’m not interested in the glamour CEO position – the person who pontificates at conferences but really doesn’t understand the nitty-gritty of the business.

1/4 on Team and People: This is the bucket that most often gets ignored but of course may be the one that matters most in the long term. It’s the one where you get to think deeply about culture, to recruit, to fire, to meet people 1:1 and to define organizational practices that have a non-linear impact on value.

I think its really important to have unscheduled time for all kinds of purposes and I try to make sure I get at least for 40% of my weeks/months for that. I spend it on whatever matters at that moment. Sometimes those are complex market-facing dynamics. Sometimes, its key customer situations that I try to hold myself responsible for. Sometimes its email. Recently I decided to spend it on looking at a possible tuck-in acquisition for the company. Some weeks I spend it helping to fly to close an end of quarter deal. Sometimes its resolving complex people-related situations or just reflecting on the direction of the business.

I don’t try to stick to these percentages at the granularity of my weeks, but I do try to course correct if entire months go way off the heuristic. To help me do this, I’m working with my Executive Assistant to map my allocation and help me stay on track. As you can see from the mapping below – the percentages above are aspirational – I have a ways go to. Overall, I feel pretty good about February. I got my 40% “think time.” I spent a lot of time on the road with customers, but the trade off was spending less time that I would have liked on products. In January, we spent a lot of time on product planning and the ratios were flipped the other way. In March, things got ugly – a ton of travel meant I was over the limit on scheduled time and interviewing consumed my “people” time.

I don’t know if my 60/40 recipe is the right answer as we grow. It certainly wouldn’t have been the right approach when we started BloomReach. But for today, it works.

Seven and a half years after launching BloomReach, I knew we needed a framework to evaluate where we came from, and more importantly where we are going.

As a maturing startup, the framework notion became crystal clear late last year when we acquired Hippo, a content management powerhouse based in Amsterdam. It was a new era for us, just as a new era was dawning in the digital economy. And Hippo? A new era there, too. Just as we came together as one company, Forrester named Hippo a Strong Performer in its 2017 Wave for Web Content Management Systems.

Which brings us back to the framework and how to build that. I scoured literary formats for analogies. A poem? Too removed from reality. Blog? Lacks the nuance of our journey. A movie? Too continuous, without breaks.

Ultimately, I settled on a book — one story with clear breaks, namely chapters, that build on each other, leading to a climax. Each chapter is a mini-story onto itself. New characters arrive as the chapters change, and older ones move on. Some protagonists (often the founders and investors) stay constant but seek renewal. Sometimes the chapters involve taking a step back, but mostly they involve a jagged sense of forward progress.

Thinking about our start-up journey in the form of chapters has been hugely important to the psychology of BloomReachers. The chapters give our investors and our teams clarity about the primary goals, the primary leaders, the most important priorities and how each chapter connects to the previous one and leads to the next one.

Perhaps the most important thing about thinking in chapters is that it allows you to close (and celebrate) one chapter and psychologically open up a new one. At BloomReach, we’ve just embarked on Chapter 3. As we talked about our latest chapter (which started late last year), we printed T-shirts (“Welcome to Chapter 3”) and we asked everyone to come to work the next day as if they’d joined a new company.

A new chapter is all about progress and change, but there are some unmovable objects in this story – the core values, the core DNA and the core mission.

The start-up journey is long – so a framework to break it up allows everyone in the company to actively recognize that a number of things need to be different with the new chapter. Different people (allowing us to ask, “Is he or she a Chapter 3 leader?”), different priorities, different processes (We are trying a new operational scaling methodology.) and an active evolution of the strategy. It also allows us to think about our value creation in step functions – knowing that early in a chapter, we need to write more of the story to realize the next milestone.

Each of our chapters has lasted about 3 to 4 years, not coincidentally what it takes to build something meaningful and representing the average vesting period of an employee’s stock options in the fast moving world of Silicon Valley.

Our Story: Chapters 1 and 2

So, how did we arrive at Chapter 3? Naturally it makes sense to start with Chapter 1. Chapter 1 in the digital economy was all about acquiring customers. It was about optimizing organic search, driving customers to a website. It was about digital leaders competing — and working to out-compete others — for a bigger share of customer acquisition.

BloomReach was there, writing its own Chapter 1 by using machine learning and a deep understanding of consumer behavior and web-wide demand to offer organic search technology for e-commerce that instantly matched individual consumers’ intent with web owners’ content at scale. Our Organic Search was a boon for enterprises. It was good for consumers, too, providing more relevant landing pages. By the end of Chapter 1, we had a large percentage of the leading e-commerce retailers in the United States on BloomReach.

Our DNA in Chapter 1 was all about back-end data scientists and a true culture of optimization for e-commerce. Our business model hinged on that value creation. But it wasn’t enough.

In Chapter 2 of the digital economy, business leaders built on Chapter 1 and focused on maximizing their investments in digital marketing and commerce to deliver higher rates of conversion and order value. Chapter 2 for BloomReach was about making sure businesses were seeing maximum lift in traffic and revenue; making sure they were squeezing the highest possible margins out of the products and services they sold.

Chapter 2 tools were about data and data science to provide digital marketers the insights they needed to target offers, promotions, and experiences to identified customer segments. In Chapter 2, our customers sought to invest in new tools to optimize the customer buying journey. Hence, the proliferation of startups in marketing and commerce technology.

BloomReach led the way into Chapter 2 with a Commerce Search product that improved and personalized site search and navigation. And we doubled-down on that success with Compass, a tool that provides merchandisers with instantly actionable data to present the right products to the right customers. With Chapter 2, BloomReach became a multi-application company across organic, site search, personalization and merchandising —all in e-commerce. We also took our product suite international — to the United Kingdom.

We needed to build new muscles to make Chapter 2 work. We needed the ability to cross-sell, build a technology foundation for three products and the ability to find three product/market fits at the same time. It is no accident that one of the fastest growing hiring periods for BloomReach was in 2012/2013 – at the onset of Chapter 2.

Our Next Journey: Chapter 3

Which brings us to Chapter 3, just in time for the third chapter of the digital economy — a more sophisticated, real-time economy. Chapter 3 represents a world in which consumers are demanding that those providing products and service on the web not only understand them as unique individuals, but that they also understand the context of their lives and the context of the moments they are living in – knowing that sometimes they are in “research mode”, sometimes in “buy mode” and sometimes in “entertainment mode.” Chapter 3 is about building durable brand power and customer relationships by truly understanding and servicing each customer as a unique individual. Chapter 3 moves beyond optimizing the customer buying journey to optimizing the entire customer lifetime journey. Chapter 3 is about buying long-term competitive differentiation through customer experience.

The consumer in today’s age is not sympathetic to the disconnected customer experience that has come out of fragmented optimization stacks and data silos of Chapter 2. And our enterprise is tired of 100 point solutions that each claim to deliver ROI but don’t move the needle. But consumers remain in a state of extraordinary flux —rapidly moving between devices, platforms and experiences. They expect the entities they deal with, our customers, to keep up with innovation, but coherent innovation.

Chapter 3 involves bringing the outcome-driven, machine-learning technology we have applied in commerce, across every other vertical — brands, government, healthcare, education, media, financial services and others. To that end, we are focused on “horizontalizing” our technology stack. It also requires us to ensure that we don’t use one platform to build our digital experiences, and another to optimize them.

We need one, self-learning platform that powers our digital experience. To do that, we felt we needed to bring together the Web Content Management space (since content is what most of the web is) with the personalization space. The platform needed to be one thing but remain open to myriad third parties plugging in.

Chapter 3 moves beyond the science of marketing and reaches for the magic of marketing, the data-optimized ability to consistently deliver a brand’s promise with every customer interaction and at every moment that matters, all while riding on a single Digital Experience Platform – one that is open and intelligent.

Building those strong bonds with consumers is the mission of every one of BloomReach’s customers. They are intent on transforming their businesses and driving competitive advantage and digital success through customer experience. And we are intent on helping them.

We couldn’t be more excited to be leading the way in the latest chapter, not just for BloomReach, but for each of our customers and the digital economy as a whole. Chapter 3 changes the game for us in terms of people (we have started to bring on new leaders in new leadership roles), priorities (we are focused on the overall digital experience space), business model (simplifying our business model to enable long-term partnerships), addressable market (an expansion from commerce to multiple verticals), geography (adding in Europe, the Middle East and Africa), operational processes (using a new methodology called “Scaling Up”), product priorities (moving aggressively to ensure customers see the value of a single platform) and ecosystem (adding more channel and ISV partners). Bottom line – a lot is different for us, as it is for the market.

We are in the midst of a dramatic business transformation, the urgency of which is underscored by Hippo’s inclusion in the Forrester Wave for WCM.

We are gratified, but not surprised, that the Forrester Wave recognized the power of our Hippo team as a Strong Performer in the WCM space. It’s a tremendous beginning for Chapter 3, but we’re just getting started.

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It’s the struggle of every start-up leader, across roles, – how to create multilayer, generational leadership to scale through the much longer journey of a start-up than many employees are able to stay around for. Some of the most successful technology companies (witness Twitter most recently) have their founders return to the helm during perilous times.

Should startups care about generational leadership? Absolutely. Generational leadership is not about CEO succession – it is about ensuring that a business can thrive even when great people leave.

The paradox is this: Technology startups are built on the mythical “A-player,” someone who contributes at 10x the normal human being. Suppose you have the good fortune of recruiting such an individual. What happens when they leave? Won’t the business performance in that individual’s domain equally suffer by 90 percent?

Now, that doesn’t work. So what do you do?

Try to create a business that doesn’t need 10x performers, then try to hire them anyway: Is the sales process unbelievably complex? Are the technical requirements extremely nuanced? Both would require 10x performers. A more scalable approach creates the kind of process or the kind of software that can be built by mere mortals.

Make it the responsibility of every leader to have a succession plan in place: As a founder or CEO, you can’t step into every possible job – and in an employment environment as robust as Silicon Valley, people are going to leave. But great leaders think of themselves as owners first (because they are with the stock they earn) and worry about what happens to the value of their shares on the day they move on. This applies to every level of the organization. Of course, this assumes you’ve created an ownership culture.

Actively promote the next “vintage” of leaders: There will come a moment when the people that helped you build the early stage business either move on voluntarily or involuntarily. The key is to create the next vintage – the ones who are not motivated by pure creation at the early stage but rather by the stage of business you are at.

Hire versatile leaders: Versatile leaders are ones who can, in the worst case, do the jobs of the people who report to them. They might not do it as well as the person they are replacing. In fact, if they are empowering leaders, they will enable their team rather than micromanage it. But when they face an inevitable departure – they can step in.

Put people in jobs that are tests: The clearest way to test if you have generational leadership is to challenge individuals to take on responsibilities that are beyond their current job function. Do they step up? The best promotions are absolutely obvious.

Always be recruiting for key roles: Its the transition from key people that is most scary, but if you’re always recruiting, it gives you confidence that the business won’t skip a beat.

It’s important to work really hard to retain the best people. But there comes a time when it’s the right time to let great people go. You might have “saved” them multiple times, persuaded them to stay on with you, but their heart is elsewhere. Perhaps they have turned negative. Perhaps their demands have become unreasonable. To create generational leadership, you have to have the courage to test it. When the moment comes, trust in your grand plan. Trust the next generation.